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Overhead Variance Analysis The Chatham plant of Morril's Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows: Direct materials (6.0 kg @ $5) $30.00 Direct labour (1.6 hrs. @ $12) 19.20 Variable overhead (1.6 hrs. @ $10) 16.00 Fixed overhead (1.6 hrs. @ $6) 9.60 Standard unit cost $74.80 During the year, the Chatham plant had the following actual production activity: , a. Production of motors totalled 50,000 units. b. The company used 82,000 direct labour hours at a total cost of $1,066,000. c. Actual xed overhead totalled $556,000. d. Actual variable overhead totalled $860,000. The Chatham plant's practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labour hours. Required: 1. Compute the variable overhead spending and efficiency variances. Spending variance $:] v Efficiency variance $:] v 2. Conceptual Connection: Compute the fixed overhead spending and volume variances. Spending variance $:] v Volume variance $:] V Interpret the volume variance. What can be done to reduce this variance? The input in the box below will not be graded, but may be reviewed and considered by your instructor. Flexible Budget, Overhead Variances Shumaker Company manufactures a line of high-top basketball shoes. At the beginning of the year, the following plans for production and costs were revealed: Pairs of shoes to be produced and sold 55,000 Standard cost per unit: Direct materials $ 15 Direct labour 12 Variable overhead 6 Fixed overhead 3 Total unit cost $ 36 During the year, a total of 50,000 units were produced and sold. The following actual costs were incurred: Direct materials $775,000 Direct labour 590,000 Variable overhead 310,000 Fixed overhead 180,000 There were no beginning or ending inventories of raw materials. In producing the 50,000 units, 63,000 hours were worked, 5 percent more hours than the standard allowed for the actual output. Overhead costs are applied to production using direct labour hours. Required: 1. Using a exible budget, prepare a performance report comparing expected costs for the actual production with actual costs. In the variance type column, type "F" for favourable and "U" for unfavourable. If the variance is zero, enter ("0") in the variance amount column and "N" for neither in the variance type column. (Note: Be sure to use capital letters.) Shumaker Company Performance Report Actual Costs Budgeted Costs Budget Variance Variance Type (F or U or N) Direct materials $I I $I I $I I v Direct labour v Variable overhead v Fixed overhead v Total $l $l $l ' Za. Determine the xed overhead spending and volume variances. Spending variance $I:I V Volume variance $:] 7 2b. Determine the variable overhead spending and efficiency variances. Spending variance $:] 7 Efficiency variance 35:] v