Overhead in an Automated Operation. Sachi Kato observes, "The nature of costs has changed since Kato Windings Company installed more automated equipment. At one time, direct labor was an important factor. With automation, direct labor is essentially a fixed cost with workers monitoring the operation on television screens. Variable overhead cost is lower, and is related to hours of machine operation. On the other hand, fixed cost is much higher than it was in a labor-oriented operation. However, the production line can only move so fast. If it is stepped up, too many pieces are broken."

Yoko Kato, the production manager, says, "We may not obtain much more savings from increases in productivity. Additional savings will have to come by holding down fixed costs and receiving a large volume of orders."

Data from last year are as follows:

\section*{Required:}
1. What was the standard variable overhead cost per product unit and the standard fixed overhead cost per product unit?
2. How much overhead was applied to production for the year?
3. Determine the following variances:

(a) Overhead budget variance.

(b) Overhead capacity variance.
4. Prepare a graph that shows how a capacity variance occurs in this case.

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Variable cost per machine hour.... Number of standard units of product per machine hour $4 100 Fixed overhead budget... $6,000,000 Normal number of product units produced in a year. 60,000,000 Actual hours of operation.. 500,000 Actual product units produced 58,000,000 Actual overhead cost: Variable overhead... Fixed overhead $1,935,000 $6,030,000