Question
World Company expects to operate at 80% of its productive capacity of 68,750 units per month. At this planned level, the company expects to use
World Company expects to operate at 80% of its productive capacity of 68,750 units per month. At this planned level, the company expects to use 30,800 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.560 direct labor hour per unit. At the 80% capacity level, the total budgeted cost includes $73,920 fixed overhead cost and $397,320 variable overhead cost. In the current month, the company incurred $487,000 actual overhead and 27,800 actual labor hours while producing 54,000 units.
(1) Compute the overhead volume variance. Classify each as favorable or unfavorable.
(2) Compute the overhead controllable variance. Classify each as favorable or unfavorable.
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