OVERHEAD VARIANCE ANALYSIS The Lubbock plant of Morril’s Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows:

Direct materials (6.0 lbs. @ $5.00) $30.00 Direct labor (1.6 hrs. @ $12.00) 19.20 Variable overhead (1.6 hrs. @ $10.00) 16.00 Fixed overhead (1.6 hrs. @ $6.00) 9.60 Standard unit cost $74.80 During the year, the Lubbock plant had the following actual production activity:

a. Production of motors totaled 50,000 units.

b. The company used 82,000 direct labor hours at a total cost of $1,066,000.

c. Actual fixed overhead totaled $556,000.

d. Actual variable overhead totaled $860,000.

The Lubbock plant’s practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.
Required:
. Compute the variable overhead spending and efficiency variances.
. Compute the fixed overhead spending and volume variances. Interpret the volume variance. What can be done to reduce this variance?
Problem