OVERHEAD VARIANCES Extrim Company produces monitors. Extrim’s plant in San Antonio uses a standard costing system. The standard costing system relies on direct labor hours to assign overhead costs to production. The direct labor standard indicates that four direct labor hours should be used for every microwave unit produced. (The San Antonio plant produces only one model.) The normal production volume is 120,000 units. The budgeted overhead for the coming year is as follows:

Fixed overhead $1,286,400 Variable overhead 888,000*

* At normal volume.

Extrim applies overhead on the basis of direct labor hours.

During the year, Extrim produced 119,000 units, worked 487,900 direct labor hours, and incurred actual fixed overhead costs of $1.3 million and actual variable overhead costs of $927,010.

Required:

. Calculate the standard fixed overhead rate and the standard variable overhead rate.

. Compute the applied fixed overhead and the applied variable overhead. What is the total fixed overhead variance? Total variable overhead variance?

. Break down the total fixed overhead variance into a spending variance and a volume variance. Discuss the significance of each.

. Compute the variable overhead spending and efficiency variances. Discuss the significance of each.

Problem