Chapter 8, Problem 17E

Calculating factory overhead: two variances

Munoz Manufacturing Co. normally produces 10,000 units of product X each month. Each unit requires 2 hours of direct labor, and factory overhead is applied on a direct labor hour basis. Fixed costs and variable costs in factory overhead at the normal capacity are $2.50 and $1.50 per direct labor hour, respectively. Cost and production data for May follow:

1. a. Calculate the flexible-budget variance.
2. b. Calculate the production-volume variance.
3. c. Was the total factory overhead under- or overapplied? By what amount?