Poulsbo Kayak Company makes molded plastic kayaks. Standard costs for an entry-level whitewater kayak are as follows:
Direct materials, 60 lb at $5.50/lb . $330
Direct labor, 1.5 hr at $16/hr .... 24
Overhead, at $12 per kayak ..... 12
Total ............. $366
The overhead rate assumes production of 450 kayaks per month. The overhead cost function is
$2,808 + ($5.76 * number of kayaks).
During March, Poulsbo produced 430 kayaks and had the following actual results:
1. Compute material, labor, and overhead variances.
2. Interpret the variances.
3. Suppose the cost function for variable overhead was $3.84 per labor hour instead of $5.76 per kayak. Compute the variable-overhead efficiency variance and the total overhead spending variance. Would these variances lead you to a different interpretation of the overhead variances from the interpretation in requirement 2? Explain.