The Herro Company mass produces wooden chairs. The standard costs follow:

Plastic 10 pounds at $4.50 per pound

Molding 3 feet at $3.00 per foot

Direct labor 4 hours at $12.00 per hour

Variable overhead $3 per direct labor hour

Fixed overhead $.75 per direct labor hour

The static budget called for 80,000 direct labor hours in June.

Transactions during June follow:

Herro purchased 200,000 pounds of plastic at $ 4.45 and issued 185,000 pounds to production.

Herro purchased 60,000 feet of molding at $3.10 per foot and issued 50,000 feet to production.

The direct labor payroll was 72,500 hours at $13.00

Overhead costs were $275,000 of which $221,125 was variable.

Herro produced 18,000 chairs during the month.

Required:

Compute the direct materials, direct labor, variable overhead, and fixed overhead variances that were discussed in class.

Discuss the significance of the variances.