Chapter 9, Problem 7CE

Variances

Refer to Cornerstone Exercise 9.6.

Required:

1. 1. Calculate the variable overhead spending variance using the formula approach. (If you compute the actual variable overhead rate, carry your computations out to five significant digits and round the variance to the nearest dollar.)
2. 2. Calculate the variable overhead efficiency variance using the formula approach.
3. 3. Calculate the variable overhead spending variance and variable overhead efficiency variance using the three-pronged graphical approach.
4. 4. What if 26,100 direct labor hours were actually worked in February? What impact would that have had on the variable overhead spending variance? On the variable overhead efficiency variance?

Standish Company manufactures consumer products and provided the following information for the month of February:

Required:

1. 1. Calculate the fixed overhead spending variance using the formula approach.
2. 2. Calculate the volume variance using the formula approach.
3. 3. Calculate the fixed overhead spending variance and volume variance using the three-pronged graphical approach.
4. 4. What if 129,600 units had actually been produced in February? What impact would that have had on the fixed overhead spending variance? On the volume variance?