Overhead variances, service setting. Munich Partners provides a diverse array of back office services to its clients in the financial services industry, ranging from record keeping and compliance to order processing and trade settlement. Munich has grown increasingly reliant on technology to acquire, retain, and serve its clients. Worried that its spending on information technology is getting out of control, Munich has recently embraced variance analysis as a tool for cost management.After some study, Munich determines that its variable and fixed technology overhead costs are both driven by the processing time involved in meeting client requests. This is typically measured in CPU units of usage of a high-performance computing cluster. Munichs primary measure of output is the number of client interactions its partners have in a given period.

The following information pertains to the first quarter of 2014 (dollars in thousands):

Budgeted Output Units 14,000 client interactions

Budgeted Fixed Technology Overhead $ 11,200

Budgeted Variable Technology Overhead $ 1.50 per CPU unit

Budgeted CPU units 0.2 units per client interaction

Fixed Technology Overhead incurred $ 12,200

CPU Units used 4,000

Variable Technology Overhead incurred $ 5,500

Actual Output Units 15,000 client interactions

1. Calculate the variable overhead spending and efficiency variances, and indicate whether each is favor-able (F) or unfavorable (U).

2. Calculate the fixed overhead spending and production volume variances, and indicate whether each is favorable (F) or unfavorable (U).

3. Comment on Munich Partners overhead variances. In your view, is the firm right to be worried about its control over technology spending?