Oerstman, Inc., uses a standard costing system and develos its overhead rates frm the current annual budget. The budget is based on an expecte annual output of 120,000 units requiring 480,000 irect labor hours. (Practical capacity is 500,000 hours.) Annual budgeted verheqa cost $787,202, of which $556,800 is fixed overhead. A total of 119,400 units using 478,000 direct labor hours were produced during the year. Actual variable overhead costs forthe year were $230,600, and actual fixed overhead costs were $556,250.

1. Compute overhead variances using a two-variance analysis.

2. Compute overhead variances using a three-variance analysis..

3. Illustrate how the two- and three- variance analyses are related to the fur-variance analysis.