The total annual factory overhead budget of the Reynolds Company is given by the fol- lowing cost equation:

Total overhead cost budgeted = $78,000 + $3.50X where X = standard direct labor hours The Reynolds Company has a practical capacity of 20,000 standard direct labor hours, but it expects to operate at a normal activity level of 15,000 standard direct labor hours. The direct labor quantity standard is 5 hours per unit of product. Last year the company produced 2,400 units and incurred $124,900 of overhead costs.
Required: (1) Using the factory overhead budget at practical capacity,

(a) compute the variable and fixed overhead rates per direct labor hour;

(b) compute the overhead budget variance; and

(c) compute the fixed overhead volume variance.
(2) Using the factory overhead budget at normal activity, repeat all the computations required in (1).
(3) Discuss the similarities and differences between your computations in (1)

 TKY-1

and (2).