Tavera Company uses a standard cost system. The direct labor standard indicates that four direct labor hours should be used for every unit produced. Tavera pro- duces one product. The normal production volume is 120,000 units of this product. The budgeted overhead for the coming year (2001) follows: lop5 Fixed overhead Variable overhead

$1,440,000 960,000*

*At normal volume Tavera applies overhead on the basis of direct labor hours.

During 2001, Tavera produced 119,000 units, worked 487,900 direct labor hours, and incurred actual fixed overhead costs of $1.5 million and actual variable overhead costs of $950,000.

Required:
1. Calculate the standard fixed overhead rate and the standard variable overhead rate.
2. Compute the applied fixed overhead and the applied variable overhead. What is the total fixed overhead variance? total variable overhead variance?
3. Break down the total fixed overhead variance into a spending variance and a volume variance. Discuss the significance of each.
4. Compute the variable overhead spending and efficiency variances. Discuss the significance of each.
5. Prepare the journal entries that would be related to fixed and variable overhead at the end of the year. Assume variances are closed to Cost of Goods Sold.