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    Variances: Variable and Fixed

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    Starlight Glassware Company has the following standards and flexible budget data.

    Standard variable overhead rate $18.00 per direct labor hour
    Standard quantity of direct labor 2 hours per unit of output
    Budgeted fixed overhead $300,000
    Budgeted output 25,000 units

    Actual results for February are as follows:

    Actual output 20,000 units
    Actual variable overhead $960,000
    Actual fixed overhead $291,000
    Actual direct labor 50,000 hours

    Use the variance formulas to compute the following variances. Indicate whether each variance is favorable or unfavorable, where appropriate.

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

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    Solution Preview

    Variable overhead spending variance = Actual variable overhead incurred - Flexible budget for variable overhead at actual hours
    Spending variance = $960,000 - 50,000 * $18.00 = $960,000 - $900,000 = $60,000 (unfavorable)

    Variable overhead efficiency variance = ...

    Solution Summary

    This solution looks at variances: variable overhead spending/efficiency, fixed overhead budget/volume.