Question: Similarity of Direct-Labor and Variable-Overhead Variances The Koh Company has had great difficulty controlling costs in Singapore during the past 3 years. Last month, the company installed a standard-cost and flexible-budget system. A condensation of results for a department follows:
The department had initially planned to manufacture 9,000 audio speaker assemblies in 6,000 standard direct-labor hours allowed. Material shortages and a heat wave resulted in the production of 8,100 units in 5,800 actual direct-labor hours. The standard wage rate is $5.25 per hour, which was $.15 higher than the actual average hourly rate.
1. Prepare a detailed performance report with two major sections: direct labor and variable overhead.
2. Prepare a summary analysis of price and quantity variances for direct labor and spending and efficiency variances for variable overhead.
3. Explain the similarities and differences between the direct-labor and variable-overhead variances. What are some of the likely causes of the overhead variances?