Question: Refer to the information from Exercise . Compute the
(1) overhead volume variance and
(2) overhead controllable variance.
Exercise: Earth Company expects to operate at 80% of its productive capacity of 25,000 units per month. At this planned level, the company expects to use 40,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $40,000 fixed overhead cost and $280,000 variable overhead cost. In the current month, the company incurred $340,000 actual overhead and 39,000 actual labor hours while producing 19,500 units.
(1) Compute its overhead application rate for total overhead.
(2) Compute its total overhead variance.