Answer:
Oerstman, Inc.
a. Fixed overhead spending variance
= $34,950 F
Fixed overhead volume variance
= $2,360 F
b. Variable overhead spending variance
= $32,868 U
Variable overhead efficiency variance
= $20,400 U
Explanation:
a) Data and Calculations:
Expected annual output = 125,000 units
Required direct labor hours = 500,000 hours
Standard direct labor hours per unit = 4 hours (500,000/125,000)
Practical capacity of direct labor hours = 520,000 hours
Annual budgeted overhead costs = $820,000
Fixed overhead = $590,000
Fixed overhead rate per dlh = $1.18 ($590,000/500,000)
Variable overhead = $230,000 ($820,000 - $590,000)
Variable overhead rate per dlh = $0.46 ($230,000/500,000)
Actual production = 119,400
Actual direct labor hours used = 498,000
Actual variable overhead costs = $262,000
Actual variable direct hours used per unit = 4.17 hours (498,000/119,400)
Actual variable overhead rate per dlh = $0.526 ($262,000/498,000)
Actual fixed overhead costs = $555,050
Actual fixed overhead rate per dlh = $1.115 ($555,050/498,000)
a. Fixed overhead spending variance = Actual fixed overhead Minus Budgeted fixed overhead
= $555,050 - $590,000
= $34,950 F
Fixed overhead volume variance = budgeted fixed overhead Minus applied fixed overhead costs
= standard rate * (500,000 - 498,000)
= $2,360 F
b. Variable overhead spending variance = Actual direct labor hours (Actual overhead rate - Standard overhead rate)
= 498,000 * ($0.526 - $0.46)
= 498,000 * $0.066
= $32,868 U
Variable overhead efficiency variance = (standard hours direct labor hours – actual direct labor hours) * standard variable overhead rate per hour
= (477,600 - 498,000) * $0.46
= $20,400 U
