Montoursville 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 @ $22.00 per hour)* 110
Total overhead $170
∗
Based on the capacity of 308.000 direct-labor hours per month.

The following information is available for the month of October.

- Variable overhead costs were $5,460,000.

- Fixed overhead costs were $8,025,000.

- 58,600 switches were produced, although 61,600 switches were scheduled to be produced.

- 291,000 direct-labor hours were worked at a total cost of $5,425,000.

Required:

Compute the variable-overhead spending and efficiency variances and the fixed-overhead budget and volumes variances for Octobers.

Variable Overhead Spending Variance $140,000 Unfavorable

Variable Overhead Efficiency Variance $40,000 Favorable

Fixed Overhead Budget Variance $150,000 Unfavorable

Fixed Overhead Volume Variance $240,000 Unfavorable

Explanation:

Variable Overhead Spending Variance $140,000 Unfavorable

(Standard rate - actual rate) * actual hours

($8 - $8.5) * 275,000 hours

= $140,000 Unfavorable

Variable Overhead Efficiency Variance $40,000 Favorable

(Standard hours - Actual Hours) * Standard Rate

(280,000 hours - 275,000) * $8

= $40,000 Favorable

Fixed Overhead Budget Variance $150,000 Unfavorable

$7,875,000 - $8,025,000 = $150,000 Unfavorable

Fixed Overhead Volume Variance $240,000 Unfavorable

$7,785,000 - $8,025,000 = $240,000 Unfavorable

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