Meals on Wheels (MOW) operate a meal home-delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax orders to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time. MOW's owner, Josh Carter, obtains the following information for May 2015 overhead costs:
Meals on Wheels (May 2015) Actual Results Static Budget
Output units (number of deliveries)..........................8,800...................10,000
Hours per delivery..........................................................................0.70
Hours of delivery time.........................................5,720
Variable overhead cost per hour of delivery time....................................$ 1.50
Variable overhead costs.....................................$10,296
Fixed overhead costs.......................................$38,600..................$35,000
Required
1. Calculate rate and efficiency variances for MOW's variable overhead in May 2015.
2. Calculate the rate variance and production-volume variance for MOW's fixed overhead in May 2015.
3. Comment on MOW's overhead variances and suggest how Josh Carter might manage MOW's variable overhead differently from its fixed overhead costs.