Overhead Variances, Two- And Three-Variance Analyses

Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 124,000 units requiring 496,000 direct labor hours. (Practical capacity is 516,000 hours.) Annual budgeted overhead costs total $773,760, of which $560,480 is fixed overhead. A total of 119,400 units using 494,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $241,800, and actual fixed overhead costs were $556,350.

Required:

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

Budget Variance

Volume Variance

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

Spending Variance

Efficiency Variance

Volume Variance