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 123,000 units requiring 492,000 direct labor hours. (Practical capacity is 512,000 hours.) Annual budgeted overhead costs total $742,920, ofwhich $546,120 is xed overhead. A total of 119,400 units using 490,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $240,400, and actual xed overhead costs were $555,600