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Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 124,000 units requiring 496,000 direct labor hours. (Practical capacity is 516,000 hours.) Annual budgeted overhead costs total $773,760, of which $555,520 is fixed overhead. A total of 119,300 units using 494,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $241,400, and actual fixed overhead costs were $555,300. Required: 1. Compute overhead variances using a two-variance analysis. 38,700 X Budget Variance Volume Variance 11,544 X Spending Variance Efficiency Variance Volume Variance Unfavorable Unfavorable 22,980 X ✓ 2. Compute overhead variances using a three-variance analysis. 22,980 X Unfavorable ✓ Unfavorable 22,980 X Unfavorable -V ✓ ✓

Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 124,000 units requiring 496,000 direct labor hours. (Practical capacity is 516,000 hours.) Annual budgeted overhead costs total $773,760, of which $555,520 is fixed overhead. A total of 119,300 units using 494,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $241,400, and actual fixed overhead costs were $555,300. Required: 1. Compute overhead variances using a two-variance analysis. 38,700 X Budget Variance Volume Variance 11,544 X Spending Variance Efficiency Variance Volume Variance Unfavorable Unfavorable 22,980 X ✓ 2. Compute overhead variances using a three-variance analysis. 22,980 X Unfavorable ✓ Unfavorable 22,980 X Unfavorable -V ✓ ✓

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 124,000 units requiring 496,000 direct labor hours. (Practical capacity is 516,000 hours.) Annual budgeted overhead costs total $773,760, of which $555,520 is fixed overhead. A total of 119,300 units using 494,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $241,400, and actual fixed overhead costs were $555,300. Required: 1. Compute overhead variances using a two-variance analysis. 38,700 X Volume Variance $11,544 x Budget Variance 2. Compute overhead variances using a three-variance analysis. 22,980 X 22,980 X Spending Variance Efficiency Variance Volume Variance Unfavorable Unfavorable 22,980 X Unfavorable Unfavorable Unfavorable ✓ ✓ ✓ ✓ ✓
Transcribed Image Text:Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 124,000 units requiring 496,000 direct labor hours. (Practical capacity is 516,000 hours.) Annual budgeted overhead costs total $773,760, of which $555,520 is fixed overhead. A total of 119,300 units using 494,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $241,400, and actual fixed overhead costs were $555,300. Required: 1. Compute overhead variances using a two-variance analysis. 38,700 X Volume Variance $11,544 x Budget Variance 2. Compute overhead variances using a three-variance analysis. 22,980 X 22,980 X Spending Variance Efficiency Variance Volume Variance Unfavorable Unfavorable 22,980 X Unfavorable Unfavorable Unfavorable ✓ ✓ ✓ ✓ ✓
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