Overhead Variances, Two$-$ And Three$-$Variance Analyses

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 $124,000$ units requiring $496,000$ direct labor hours. $($Practical capacity is $516,000$ hours.$)$ Annual budgeted overhead costs total $$753,920,$ of which $$550,560$ is fixed overhead. A total of $119,000$ units using $494,000$ direct labor hours were produced during the year. Actual variable overhead costs for the year were $$241,300,$ and actual fixed overhead costs were $$556,200.$

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

Budget Variance

Volume Variance

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

Spending Variance

Efficiency Variance

Volume Variance