Exercise - Overhead Variances
Mankato Control Company, which manufactures electrical switches, uses a standard-costing system. The standard production overhead costs per switch are based on direct-labor hours and are as follows:
Variable overhead (5 direct-labor hours @ $12.00 per hour) - $60
Fixed overhead (5 direct-labor hours @18.00 per hour)* - 90
Total overhead - $150
*Based on practical capacity of 300,000 direct-labor hours per month.
The following information is available for the month of October.
- Variable overhead costs were $3,510,000.
- Fixed overhead costs were $5,625,000.
- 56,000 switches were produced, although 60,000 switches were scheduled to be produced.
- 275,000 direct-labor hours were worked at a total cost of $3,825,000.
Required: Compute the variable-overhead spending and efficiency variances and the fixed-overhead budget and volume variances for October. Indicate whether a variance is favorable or unfavorable where appropriate.