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Claims Management Inc. provides claims processing services to several large health insurance providers. Customers who are covered by health insurance provided by one of Claims Management's partners submit their claims for health and dental services along with related documentation, and the employees at Claims Management compare their claims to the details of their benefit plans and calculate the value of the benefits owed. The company uses a predetermined variable overhead rate based on direct labour-hours. In the month of September, 15,000 claims were processed using 4,500 direct labour-hours. The company incurred a total of $4,950 in variable overhead costs. According to the company's standards, 0.25 direct labour-hours are required to process a claim, and the variable overhead rate is $1.20 per direct labour-hour. Required: 1. What variable overhead cost should have been incurred to process the 15,000 claims? How much does this differ from the actual variable overhead cost? 2. Break down the difference computed in (1) above into a variable overhead spending variance and a variable overhead efficien variance. CHECK FIGURE 1. Standard variable overhead cost = $4,500. 1. Number of claims processed Total standard variable overhead cost................. Total variable overhead variance... 2. Actual Hours of Input, at the Actual Rate Actual Hours of Input, at the Standard Rate Standard Hours Allowed for Output, at the Standard Rate 1 Variable overhead spending Variable overhead variance efficiency variance, Total variance Alternatively, the variances can be computed using the formulas: Variable overhead spending variance: Variable overhead efficiency variance