Petrillo Company produces engine parts for large motors. The company uses a standard cost system for production

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Question:

Petrillo Company produces engine parts for large motors. The company uses a standard cost system for production costing and control. The standard cost sheet for one of its higher volume products (a valve) is as follows:

During the year, Petrillo had the following activity related to valve production:

Production of valves totaled 20,600 units.

A total of 135,400 pounds of direct materials was purchased at $5.36 per pound.

There were 10,000 pounds of direct materials in beginning inventory (carried at $5.40 per pound). There was no ending inventory.

The company used 36,500 direct labor hours at a total cost of $656,270.

Actual fixed overhead totaled $110,000.

Actual variable overhead totaled $168,000.

Petrillo produces all of its valves in a single plant. Normal activity is 20,000 units per year. Standard overhead rates are computed based on normal activity measured in standard direct labor hours.

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

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