Sari Inc. has a fully automated production facility in which almost 97 percent of overhead costs are driven by machine hours. As the companys cost accountant, you have computed the following overhead variances for May:

Variable overhead spending variance	$102,000	F
Variable overhead efficiency variance	123,600	F
Fixed overhead spending variance	84,000	U
Fixed overhead volume variance	60,000	U

The companys president is concerned about the variance amounts and has asked you to show her how the variances were computed and to answer several questions. Budgeted fixed overhead for the month is $3,000,000; the predetermined variable and fixed overhead rates are, respectively, $20 and $40 per machine hour. Budgeted capacity is 60,000 units.

a. Using the four-variance approach, prepare an overhead analysis. Note: Do not use negative signs with your answers.

FOH spending variance
Actual FOH	-	Budgeted FOH	=	FOH Spending Variance
	-		=		Unfavorable

FOH volume variance
Budgeted FOH	-	Applied FOH	=	FOH Volume Variance
	-		=		Unfavorable

VOH spending variance
Actual VOH	-	VOH Rate x Actual Hours	=	VOH Spending Variance
	-		=		Favorable

VOH efficiency variance
VOH Rate x Actual Hours	-	Applied VOH	=	VOH Efficiency Variance
	-		=		Favorable

b. What is the standard number of machine hours allowed for each unit of output? c. How many actual hours were worked in May? d. What is the total spending variance? e. How would the overhead variances be closed if the three-variance approach were used and the variances are considered insignificant?