Newark Plastics Corporation developed its overhead application rate from the annual budget. The budget is based on an expected total output of 720,000 units requiring 3,600,000 machine hours. The company is able to schedule production uniformly throughout the year.

A total of 66,000 units requiting 315,000 machine hours were produced during May. Actual over-head costs for May amounted to $375,000. The actual costs, as compared to the annual budget and to one-twelfth of the annual budget, are as follows:

Required:
1. Prepare a schedule showing the following amounts for Newark Plastics for May.
a. Applied overhead costs.
b. Variable-overhead spending variance.
c. Fixed-overhead budget variance.
d. Variable-overhead efficiency variance.
e. Fixed-overhead volume variance.
Where appropriate, be sure to indicate whether each variance is favorable or unfavorable.
2. Draw a graph similar to Exhibit to depict the variable-overhead variances.

3. Why does your graph differ twin Exhibit other than the fact that the numbersdiffer?

NEWARK PLASTICS CORPORATION Annual Budget Total Amount Per Unit Per Machine Hour Monthly Budget Actual Costs for May Variable overhead: Indirect material Indirect labor $1,224,000 $1.70 1.25 34 $102,000 $111,000 75,000 900,000 25 75,000 Fixed overhead: Supervision Utilities Depreciation 90 75 1.40 $4,320,000 $6.00 648,000 540,000 1,008,000 18 15 .28 $1.20 54,000 45,000 84,000 51,000 54,000 84,000 Total $360,000 $375,000 Rate (Actual) $5.50 Standard) $5.00 Process 6,000 6,300 hours Standard) (Actual)