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    Paper company produces paper for photocopier

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    Paper company produces paper for photocopier. The company has developed standard overhead rates based on a monthly capacity of 180,000 direct labor hours as follows:

    Standard cost per un it ( one box of paper)
    Variable overhead (2 hours @ $3 per hour).............. $6
    Fixed overhead (2 hours @ $5 per hour)................. $10

    Total.................................................. $16

    During April, 90,000 units were scheduled for production; however, only 80,000 units were actually produced. The following data relates to April.

    1. Actual direct labor cost incurred was $1,567,500 for 165,000 actual hours of work.
    2. Actual overhead incurred totalled #1,371,500, of which $511,500 was variable and $860,000 was fixed.

    On the excel sheet hinted example sheet provided show the following variances. Tell whether each variance is favorable or unfavorable.

    1. Variable-overhead spending variance
    2. Variable-overhead effeciency variance
    3. Fixed-overhead budget variance
    4. Fixed-overhead volume variance

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    The solution examines a paper company producing paper for photocopiers.

    $2.19

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