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Overhead Variance Analysis The Lubbock plant of Morril’s Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows:
During the year, the Lubbock plant had the following actual production activity: (a) Production of motors totaled 50,000 units; (b) The company used 82,000 direct labor hours at a total cost of $1,066,000; (c) Actual fixed overhead totaled $556,000; and (d) Actual variable overhead totaled $860,000. The Lubbock plant’s practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.
Required:
1. Compute the variable overhead spending and efficiency variances.
2. Conceptual Connection: Compute the fixed overhead spending and volume variances. Interpret the volume variance. What can be done to reduce this variance?
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