Requirements: 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable.

Static budget variable overhead	$7,500
Static budget fixed overhead	$3,000
Static budget direct labor hours	1,500	hours
Static budget number of units	7,500	units

Watson

allocates manufacturing overhead to production based on standard direct labor hours. Last month,

Watson

reported the following actual results: actual variable overhead,

$10,700;

actual fixed overhead,

$2,830;

actual production of

7,100

units at

0.40

direct labor hours per unit. The standard direct labor time is

0.2

direct labor hours per unit

(1,500 static direct labor hours /7,500 static units).