Great Fender uses a standard cost system and provide the following information:

Great Fender allocates manufacturing overhead to production based on standard direct labor hours. Great Fender reported the following actual results for 2018: actual number of fenders produced, 20,000; actual variable overhead, $5,250; actual fixed overhead, $28,000; actual direct labor hours, 410.

Requirement 2. Explain why the variances are favorable or unfavorable.

The variable overhead cost variance is [unfavorable or favorable] because management spent [less or more] than budgeted for the actual production.

The variable overhead effiency variance is [unfavorable or favorable] because management used [fewer or greater] direct labor hours than standard and variable overhead is applied (incurred) based on direct labor.

The fixed overhead cost variance is [unfavorable or favorable] because management spent [less or more] than the amount budgeted for the fixed overhead.

The fixed overhead volume variance is [unfavorable or favorable] because management allocated [less or more] fixed overhead to jobs than was budgeted.

$2,875 Static budget variable overhead Static budget fixed overhead Static budget direct labor hours Static budget number of units Standard direct labor hours $23,000 575 hours 25,000 units 0.023 hours per fender Requirement 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U). (You may need to simply the formula based on the data provided. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.) Formula Variance VOH cost variance VOH efficiency variance Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance FOH cost variance FOH volume variance