Chapter 10, Problem 73P

The Lubbock plant of Morril’s Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows:

During the year, the Lubbock plant had the following actual production activity: (a) Production of motors totaled 50,000 units, (b) The company used 82,000 direct labor hours at a total cost of $1,066,000. (c) Actual fixed overhead totaled $556,000. (d) Actual variable overhead totaled $860,000.

  The Lubbock plant’s practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.

Required:

1. Compute the variable overhead spending and efficiency variances.

2. CONCEPTUAL CONNECTION Compute the fixed overhead spending and volume variances. Interpret the volume variance. What can be done to reduce this variance?