Derf Company allocates overhead on the basis of direct labour hours. Two direct labour hours are required for each unit of product. Planned production for the period was set at 9000 units. Manufacturing overhead is estimated at $135 000 for the period (20 per cent of this cost is fixed). The 17 200 hours worked during the period resulted in the production of 8500 units. Variable manufacturing overhead cost incurred was $108 500 and the fixed manufacturing overhead cost was $28 000.
Required:
(a) Determine the variable overhead spending variance.
(b) Determine the variable overhead efficiency (quantity) variance.
(c) Determine the fixed overhead spending (budget) variance.
(d) Determine the production volume (fixed overhead volume or denominator) variance.
(e) Prepare journal entries to close these variances at the end of the period.