Answered: Oerstman, Inc., uses a standard costing…

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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Question

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 $828,320, of which $590,240 is fixed overhead. A total of 119,000 units using 494,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $260,900, and actual fixed overhead costs were $555,450.

Required:

1. Compute the fixed overhead spending and volume variances.

Fixed Overhead Spending Variance	$	Favorable/Unfavorable
Fixed Overhead Volume Variance	$	Favorable/Unfavorable

2. Compute the variable overhead spending and efficiency variances. Do not round intermediate calculations

Variable Overhead Spending Variance	$	Favorable/Unfavorable
Variable Overhead Efficiency Variance	$	Favorable/Unfavorable

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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