Pratt, Inc., uses a standard costing system and develops itsoverhead rates from the current annual budget. The budget is basedon an expected annual output of 100,000 units requiring 500,000direct labor hours. Annual budgeted overhead costs total $437,500,of which $187,500 is fixed overhead. A total of 104,000 units using540,000 direct labor hours were produced during the year. Actualvariable overhead costs for the year were $260,000, and actualfixed overhead costs were $200,000.
Q1. Compute the fixed overhead spending and volume variances. Entervariance as a positive number and select Favorable or Unfavorable.
Q2. How would you interpret the spending variance? Discuss thepossible interpretations of the volume variance. Which is mostappropriate for this example?
Q3. Compute the variable overhead spending and efficiencyvariances. Enter variance as a positive number and select Favorableor Unfavorable.
Q4. How is the variable overhead spending variance like the pricevariances of direct labor and direct materials? How is itdifferent? How is the variable overhead efficiency variance relatedto the direct labor efficiency variance?