7.15 Eastern Company manufactures special electrical equipment and parts. Eastern uses standard costs, with separate standards established for each product. A special transformer is manufac- tured in the Transformer Department. Production volume is measured by direct labor hours in this department, and a flexible budget system is used to plan and control department overhead. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer for 1987 was $67.00: h25 Direct materials: Iron Copper Direct labor Variable overhead Fixed overhead Total 5 sheets @ $2.00 - $10.00 3 spools @ $3.00 - 9.00 4 hours @ $7.00 - 28.00 4 hours @ $3.00 - 12.00 4 hours @ $2.00 - 8.00 $67.00 Overhead rates were based on normal and expected monthly labor hours for 1987, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used. During October 1987, 800 transformers were produced. This was below expectations because a work stoppage occurred during contract negotiations with the labor force. Once the contract was settled, the department scheduled overtime in an attempt to catch up to expected production levels Actual costs incurred in October 1987 were as follows: Direct materials: Purchased Used Iron 5,000 sheets @ $2.00 per sheet 3,900 sheets Copper 2,200 spools @ $3.10 2,600 spools Direct labor: Regular time 2,000 hours @ $7.00 1,400 hours @ $7.20 Overtime 600 of the 1,400 hours were subject to overtime premium. The total overtime premium of $2.160 is included in variable overhead in accordance with corporate accounting practices. Variable overhead $10.000 Fixed overhead $ 8.800 Prepare a complete analysis of all production variances. Use a four-way analysis for overhead. Materials price variances are isolated at the time of purchase