Using the separate overhead variance calculations for variable and fixed costs

Using the separate overhead variance calculations for variable and fixed costs

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Using the separate overhead variance calculations for variable and fixed costs, the total overhead  variance is the same $485 unfavorable. The total variable overhead cost variance is $542  unfavorable, indicating actual variable costs were higher than standard variable costs and, therefore,  the overhead is underapplied. The total fixed overhead variance is $57 favorable, indicating overhead  is overapplied, because the actual fixed costs are less than the standard fixed costs. The $650 unfavorable variable cost spending variance is calculated by subtracting the $4,680 flexible  budget for variable overhead (actual direct labor hours times variable overhead per direct labor hour,  or 6,500 × $0.72) from the actual variable overhead of $5,330. It is unfavorable because more was  spent on variable overhead costs per direct labor hour than the $0.72 that was budgeted. Knowing 
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Unformatted text preview: that total variable costs are $5,330 and that 6,500 direct labor hours were incurred, the actual variable overhead costs per direct labor hour rate was $0.82. The $108 favorable efficiency variance is determined by subtracting $4,788 standard overhead (13,300 units by the variable overhead per unit predetermined rate of $0.36) from the flexible budget variable overhead cost of $4,680. It occurred because it took only 6,500 direct labor hours instead of 6,650 (13,300 units .5 hours per unit) direct labor hours to produce the 13,300 units. The total variable cost variance of $542 is calculated by adding the $650 unfavorable spending variance and the $108 favorable efficiency variance....
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