ACC 206 Week 4 Chapter 7 Exercise 5 Overhead variances

Nova Manufacturing applies factory overhead to products on the basis of direct labor hours. At the beginning of the current year, the company’s accountant made the following estimates for the forthcoming period:

·         Estimated variable overhead: $500,000

·         Estimated fixed overhead: $400,000

·         Estimated direct labor hours: 40,000

 

It is now 12 months later. Actual total overhead incurred in the manufacture of 7,900 units amounted to $895,100. Actual labor hours totaled 39,800. Assuming a direct labor standard of five hours per finished unit, calculate the following:

a.       Variable overhead efficiency variance

b.      Fixed overhead volume variance