Problem: The Milling Department uses standard machine hours to allocate overhead to products. Budgeted volume for the year was 36,000 machine hours. A flexible budget is used to set the overhead rate. Fixed overhead is budgeted to be $720,000 and variable overhead is estimated to be $10 per machine hour.
During the year, two products are milled. The following table summarizes operations.
Product 1 Product 2
Units milled 10,500 12,000
Standard machine per unit 2 1
Actual machine hours used 23,000 13,000
Actual overhead during the year was $1.1 million.
Calculate all the relevant overhead variances for the department, and write a memo that describes what each one means.