Refer to the data in Exercise 9.15.

Data in 9.15

Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 120,000 units requiring 480,000 direct labor hours. (Practical capacity is 500,000 hours.) Annual budgeted overhead costs total $787,200, of which $556,800 is fixed overhead. A total of 119,400 units using 478,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $230,600 and actual fixed overhead costs were $556,250.

Required:

1. Compute overhead variances using a two-variance analysis.

2. Compute overhead variances using a three-variance analysis.

3. Illustrate how the two- and three-variance analyses are related to the four-variance analysis.