Variances and conversion cost category

Auto Brakes Inc. manufactures brake rotors and has always applied overhead to production using direct labor hours. Recently, company facilities were automated, and the accounting system was revised to show only two cost categories: direct material and conversion. Estimated variable and fixed conversion costs for the current month were $156,800 and $70,560, respectively. Expected output for the current month was 4,900 rotors, and the estimated number of machine hours was 9,800. During July 2013, the firm actually used 8,700 machine hours to make 4,700 rotors while incurring $207,860 of conversion costs. Of this amount, $135,200 was variable cost.

a. Using the four-variance approach, compute the variances for conversion costs.

Fixed Conversion Variances:
Spending Variance	$	- ______ Unfavorable
Volume Variance	$	- ______ Unfavorable
Total Fixed Conv. Variance	$	- ______ Unfavorable
Variable Conversion Variances:
Spending Variance	$	-______ Favorable
Efficiency Variance	$	-______ Favorable
Total Var. Conv. Variance	$	- ______ Favorable

b. Evaluate the effectiveness of the firm in controlling the current month's costs.

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