Factory Overhead Flexible Budget and Variance Analyses Lopez & Co. uses flexible budgets for cost control. During March, Lopez spent 2,850 machine hours to produce 10,800 units and incurred $13,000 in total factory overhead, of which $4,500 was for fixed factory overhead.
The master budget for the year called for production of 150,000 units using 37,500 machine hours and a total factory overhead of $180,000. The total fixed factory overhead in the annual budget was $60,000.
Three-Variance and Two-Variance Analyses Using data given in above for Lopez & Co.
Required
1. Use a three-way breakdown of the total overhead variance to determine the following variance components:
a. Total overhead spending variance.
b. Overhead efficiency variance.
c. Production-volume variance.
2. Use a two-variance breakdown of the total overhead variance to determine the following variance components:
a. Total overhead flexible-budget variance.
b. Production-volume variance.
3. What is the total factory-overhead variance for the month of March?