Pier Corp. has an expected monthly capacity of 9,000 units

Pier Corp. has an expected monthly capacity of 9,000 units but only 5,700 units were produced and 6,000 direct labor hours were used during August 2010 due to a flood in the manufacturing facility. Actual variable overhead for August was $48,165 and actual fixed overhead was $140,220.

Standard cost data follow:

Standard Cost per Unit

(One Unit Takes One Labor Hour)

Direct material .........$9.00

Direct labor .........15.00

Variable overhead ........ 8.00

Fixed overhead .......16.00

Total ........... $48.00

a. Compute and compare the actual overhead cost per unit with the expected overhead cost per unit.

b. Calculate overhead variances using the four-variance method.

c. Explain why the volume variance is so large.


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