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Paper company produces paper for photocopier

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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Solution Summary

The solution examines a paper company producing paper for photocopiers.

$2.19