Overhead Variances, Two- And Three-Variance Analyses Oerstman, Inc, uses a stand

Question

Overhead Variances, Two- And Three-Variance Analyses Oerstman, Inc, uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 120,000 units requiring 480,000 direct labor hours. (Practical capacity is 500,000 hours.) Annual budgeted overhead casts tatal $748,800, of which $532,800 is fixed overhead. A total of 119,500 units using 479,000 direct labar hours were produced during the year. Actual variable overhead costs for the year were $241,900, and actual fixed overhead costs were $555,000 Required: 1. Compute overhead varlances using a two-variance analysis. Budget Variance olume Variance 2. Compute overhead variances using a three-variance analysis. Spending Variance Efficiency Variance Wolume Variance

Explanation / Answer

Ans 1 Budget Variance 48100 U Actual-Budgeted overhead (241900+555000)-748800 Volume Varaince 3120 F Absorbed overhead-Budgeted overhead based on std labor hrs -3120 (1.56*478000)-748800 Varaible overhead rate 0.45 (748800-532800)/480000 Overhead rate=748800/480000 1.560 ans 2 Sprending variance Actual-Budgeted allowance based on actual hours (241900+555000)-(532800+(.45*478000)) 49000 U Efficiency variance 748800-747900 900 F Volume Varaince 3120 F Absorbed overhead-Budgeted overhead based on std labor hrs -3120 (1.56*478000)-748800

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