8-44 Overhead variances, ethics. (LO 1, 2) Carpenter Company uses standard costing. The company has a manufacturing plant in Georgia. Standard labour-hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.50 per direct labour-hour. Fixed overhead for the Georgia plant is budgeted at $1,800,000 for the year. Firm management has always used variance analysis as a performance measure for the plant.

Tom Saban has just been hired as a new controller for Carpenter Company. Tom is good friends with the Georgia plant manager and wants him to get a favourable review. Tom decides to underestimate production, and budgets annual output of 1,200,000 units. His explanation for this is that the economy is slowing, and sales are likely to decrease.

At the end of the year, the plant reported the following actual results: output of 1,500,000 using 760,000 labour-hours in total, at a cost of $2,700,000 in variable overhead and $1,850,000 in fixed overhead.

Required

1. Compute the budgeted fixed cost per labour-hour for the fixed overhead.
2. Compute the variable overhead spending variance and the variable overhead efficiency variance.
3. Compute the fixed overhead spending and volume variances.
4. Compute the budgeted fixed cost per labour-hour for the fixed overhead if Tom Saban had estimated production more realistically at the expected sales level of 1,500,000 units.
5. Summarize the fixed overhead variance based on both the projected level of production of 1,200,000 units and 1,500.