Question: Overhead variances, service sector. Cavio is a cloud service provider that offers computing resources to handle enterprise-wide applications. For March 2017, Cavio estimates that it will provide 18,000 RAM hours of services to clients. The budgeted variable overhead rate is $6 per RAM hour. At the end of March, there is a $500 favorable spending variance for variable overhead and a $1,575 unfavorable spending variance for fixed overhead. For the services actually provided during the month, 14,850 RAM hours are budgeted and 15,000 RAM hours are actually used. Total actual overhead costs are $119,875.
1. Compute efficiency and flexible-budget variances for Cavio's variable overhead in March 2017. Will variable overhead be over- or underallocated? By how much?
2. Compute production-volume and flexible-budget variances for Cavio's fixed overhead in March 2017. Will fixed overhead be over- or underallocated? By how much?