Overhead Application, Overhead Variances

Tavera Company uses a standard cost system. The direct labour standard indicates that five direct labour hours should be used for every unit produced. Tavera produces one product. The normal production volume is 120,000 units of this product. The budgeted overhead for the coming year is as follows:

Tavera applies overhead on the basis of direct labour hours.

Fixed overhead $2,160,000

Variable overhead $1,440,000 (at normal volume)

During the year, Tavera produced 118,600 units, worked 592,300 direct labour hours, and incurred actual fixed overhead costs of $2,150,400 and actual variable overhead costs of $1,422,800.

Required:

1. Calculate the standard fixed overhead rate and the standard variable overhead rate. each per direct labour hour. Round your answers to the nearest cent.

Standard fixed overhead rate $_______ per DLH

Standard variable overhead rate $ _______per DLH

2. Compute the applied fixed overhead and the applied variable overhead. What is the total fixed overhead variance? Total variable overhead variance?

Applied fixed overhead $

Applied variable overhead $

Total fixed overhead variance $

Total variable overhead variance $

3. Conceptual Connection: Break down the total fixed overhead variance into a spending variance and a volume variance.

Spending variance $

Volume variance $

Discuss the significance of each.

4. Conceptual Connection: Compute the variable overhead spending and efficiency variances.

Spending variance $

Efficiency variance $

Discuss the significance of each.