Refer to the information from Exercise 8-6. Compute and interpret the following.

1. Variable overhead spending and efficiency variances.

2. Fixed overhead spending and volume variances.

3. Controllable variance.

Reference Exercise 8-6:

Computation of total variable and fixed overhead variances

Sonic Company set the following standard costs for one unit of its product for 2011.

The $3.00 ($2.50 + $0.50) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 500,000 hours, and the following actual overhead costs were incurred.

Transcribed Image Text:

Direct matertal (20 lbs.@ $2.50 per Ib.) Direct labor (15 hrs.@ $8.00 per hr.) Factory varlable overhead (15 hrs.@ $2.50 per hr.) Factory fixed overhead (15 hrs.s0.50 per hr) Standard cost 50.00 20.00 37.50 7.50 $215.00 Operating Levels (% of capacity) 75% 3 Budgeted output (units) 4 Budgeted labor (standard hours) 5 Budgeted overhead (dollars) 6 Variable overhead 7Fixed overhead 8 Total overhead 35,000 525,000 37,500 562,500 40,000 600,000 $1,312,500 $1,406,250 $1,500,000 281,250 $1,593,750 $1,687,500 $1,781,250 281,250 Vartable overhead costs Fixed overhead costs Total overhead costs 1.267,500 285,000 $1,552,500