Refer to the information from Exercise 8-17. Compute and interpret the following.

1. Variable overhead spending and efficiency variances.

2. Fixed overhead spending and volume variances.

3. Controllable variance.

In Exercise 8-17

Sedona Company set the following standard costs for one unit of its product for 2015.

Direct material (20 Ibs. @ $2.50 per Ib.) . . . . . . . . . . . . . . . . . . . . . . . $ 50

Direct labor (10 hrs. @ $8.00 per hr.) . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Factory variable overhead (10 hrs. @ $4.00 per hr.) . . . . . . . . . . . . . . . . 40

Factory fixed overhead (10 hrs. @ $1.60 per hr.) . . . . . . . . . . . . . . . . . . 16

Standard cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $186

The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.
Variable overhead costs . . . . . . . . $1,375,000
Fixed overhead costs . . . . . . . . . . . . 628,600
Total overhead costs . . . . . . . . . . . $2,003,600

Transcribed Image Text:

Operating Levels (% of capacity 75% Flexible Budget 70% 37,500 375,000 3 Budgeted output (units) 35,000 4 Budgeted labor (standard hours) 350,000 400,000 Budgeted overhead (dollars) 6 7 8 5 $1,400,000 $1,600,000 Variable overhead Fixed overhead Total overhead $1,500,000 $2,000,000$2,100,000 $2,200,00o