Chapter 8, Problem 20E

Exercise 21-20 Computation of volume and controllable overhead variances P3

Refer to the information from Exercise 21-19.Compute the (1) overhead volume variance and (2) overhead controllable variance and classify each as favorable or unfavorable.

Check (2) $14,375U

Exercise 21-19 Computation of total overhead rate and total overhead variance P3

World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.625 direct labor hours per unit. At the 80% capacity level, the total budgeted cost includes $50,000 fixed overhead cost and $275,000 variable overhead cost. In the current month, the company incurred $305,000 actual overhead and 22,000 actual labor hours while producing 35,000 units.

1. Compute the predetermined standard overhead rate for total overhead.
2. Compute and interpret the total overhead variance.