Oerstman, Inc., uses a standard costing system and develops its overhead rates f
ID: 2446234 • Letter: O
Question
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 121,000 units requiring 484,000 direct labor hours. (Practical capacity is 504,000 hours.) Annual budgeted overhead costs total $784,080, of which $566,280 is fixed overhead. A total of 119,400 units using 482,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $260,300, and actual fixed overhead costs were $555,250.
Required:
1. Compute the fixed overhead spending and volume variances.
2. Compute the variable overhead spending and efficiency variances. Do not round intermediate calculations
Fixed Overhead Spending Variance $ Fixed Overhead Volume Variance $Explanation / Answer
Fixed Overhead Spending Variance= Actual Fixed Overhead- Budgeted Fixed overhead
=$555250-$566280
=$(11030)
Fixed Overhead Volume Variance= Fixed Overhead Cost Absorbed- Budgeted Fixed
Overhead Cost
Fixed overhead cost absorbed = Actual Output*Budgeted rate per Units
= 119400*($566280/121000)
= $558792
Budgeted Fixed Overhead Cost = $566280
Therefore FOVV = $558792-$566280
=$(7488)
Variable Overhead Spending Variance=Actual Hours Worked(Actual Overhead Rate-
Standard overhead Rate)
Actual Overhead Rate =$260300/119400= 2.18
Standard Overhead Rate =($784080-$566280)/121000=1.8
Therefore VOSV = 119400(2.18-1.8)
=$45372
Variable Overhead efficiency Variance= Standard Variable Overhead Rate per hour(Actual Hours-
Standard Hours)
Standard Variable Overhead Rate per Hours = $217800/484000=.45
Therefore VOEV = .45(484000-482000)
= .45*2000
= 900
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