James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 10,000 units (80% of its production capacity of 12,500 units) and prepared the following overhead budget:

	Operating Levels
Overhead Budget	80%
Production in units		10,000
Standard direct labor hours		25,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		25,000
Power		7,000
Maintenance		3,000
Total variable costs		50,000
Fixed overhead costs
Rent of factory building		25,000
DepreciationMachinery		11,000
Supervisory salaries		14,000
Total fixed costs		50,000
Total overhead costs	$	100,000

During May, the company operated at 90% capacity (11,250 units) and incurred the following actual overhead costs:

Overhead costs (actual)
Indirect materials	$	15,000
Indirect labor		27,725
Power		7,875
Maintenance		4,020
Rent of factory building		25,000
DepreciationMachinery		11,000
Supervisory salaries		17,600
Total actual overhead costs	$	108,220

1. Compute the overhead controllable variance and classify it as favorable or unfavorable. 2. Compute the overhead volume variance and classify it as favorable or unfavorable. 3. Prepare an overhead variance report at the actual activity level of 11,250 units.