Anpax, Inc., manufactures two products: L7 and Q2. Overhead is allocated to products based on machine hours. Management uses a flexible budget to forecast overhead. For the current year, fixed factory overhead is projected to be $ 2.75 million and variable factory overhead is budgeted at $ 20 per machine hour. At the beginning of the year, management developed the following standards for each product and made the following production forecasts for the year:

There were no beginning or ending inventories. Actual production for the year was 20,000 units of L7 and 40,000 units of Q2. Other data summarizing actual operations for the year are:

Required:
a. Calculate the overhead rate for the current year. b. Calculate materials and labor variances. Report quantity (efficiency) variances and price variances.
c. Calculate the volume, spending, and efficiency overhead variances.
d. Your boss (a nonaccountant) asks you to explain in nontechnical terms the meaning of each overheadvariance.

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ANPAX, INC. Current Year Standards and Production Forecasts Products L7 Budgeted number of units to produce Production standards 25,000 Direct labor per unit Direct materials per unit Machine hours per unit 35,000 $15/hour 5 hours 10 hoursS1SVhour 85 pounds lpoun 5 pounds Slpound 12 hours 4 hours Direct labor Direct materials Machine hours Overhead (both fixed and variable) 700,000 hours 5.0 million pounds 270,000 hours $9.8 million S5.5 million $8.4 million