QUESTION FOUR: VARIANCE ANALYSIS Zapp Ltd is a manufacturer of electrical switches, and uses a standard costing system. The standard manufacturing overhead costs per switch are based on direct labour hours and are as follows: Variable overhead (5 hours @ $12 per hour) $ 60 Fixed overhead (5 hours @ $20 per hour)* $100 $160 Total overhead Based on capacity of 307 000 direct labour hours per month. The following information is available for October: 58 400 switches were produced, although 61 400 switches were budgeted. 289 000 direct labour hours were worked at a total cost of $5,225,000. Variable overhead costs were $5,220,000. Fixed overhead costs were $7,725,000. Required: For October compute the following variances (Include all your workings and indicate the effect of each variance by indicating whether the variance is Favourable or Unfavourable) (3 marks) (a) Variable overhead spending variance (3 marks) Variable overhead efficiency variance. (b) (3 marks) (c) Fixed overhead budget variance. Fixed overhead volume variance. (3 marks) (d)