Response to the following problem:
Pier Corp. has an expected monthly capacity of 9,000 units but only 5,700 units were produced and 6,000 direct labor hours were used during August 2010 due to a flood in the manufacturing facility. Actual variable overhead for August was $48,165 and actual fixed overhead was $140,220.
Standard cost data follow:
Standard Cost per Unit
(One Unit Takes One Labor Hour)
Direct material .......................$9.00
Direct labor .........................15.00
Variable overhead .................... 8.00
Fixed overhead .....................16.00
Total ................................. $48.00
a. Compute and compare the actual overhead cost per unit with the expected overhead cost per unit.
b. Calculate overhead variances using the four-variance method.
c. Explain why the volume variance is so large.