A cost accountant estimates that next year’s normal capacity for the Susan Douglass Company will be 40,000 machine-hours. At this level, managers estimate fixed costs at $140,000 with variable costs of $90,000. There were 41,000 actual machine-hours for the year ended February 28, 19X1, and total costs were $232,500.

Required:

a. What is the fixed overhead rate at normal capacity?

b. What is the total overhead rate used to apply factory overhead during the year?

c. What is the amount of over- or underapplied factory overhead?

d. Compute the volume variance and the spending variance for the year. Are they favorable or unfavorable? Prove your answer.