Flexible Budgeting and the Management of Overhead

Corporation El Grillo uses a standard cost system. They apply the indirect cost of manufacturing overhead based on the machine hours. Indirect cost standards per unit are as follows:

Variable indirect costs: 4hrs at $9

Fixed indirect costs: 4hrs at $6

*Based on monthly planned activities of 120,000 hours of machinery

Below March data:

Number of units produced: 29,000

Number of machine hours worked: 125,000

Variable indirect costs incurred: 1,085,000

Fixed indirect costs incurred: 755,000

1. Calculate the variable spending and efficiency variances

2. Indicate whether a variance is favorable or unfavorable