Henry Company has established the following standards for the costs of one unit of its product. The standard production overhead costs per unit are based on direct-labor hours. Calculation for standard per unit cost is as follows:
|
Std Cost
|
Std Qty
|
Std Price/Rate
|
Direct Material
|
$ 14.40
|
6.00 kg
|
$ 2.40/kg
|
Direct Labor
|
$ 3.00
|
0.40 hour
|
$ 7.50/hour
|
Variable Overhead
|
$ 4.00
|
0.40 hour
|
$ 10.00/hour
|
Fixed Overhead*
|
$ 4.80
|
0.40 hour
|
$ 12.00/hour
|
Total
|
$ 26.20
|
|
|
*based on practical capacity of 2,500 direct-labor hour per month
During December 2020, Henry purchased 30,000 kg of direct material at a total cost of $75,000. The total wages for December were $20,000, 75% of which were for direct labor. Henry manufactured 4,500 units of product during December 2020, using 28,000kg of the direct material purchased in December and 2,100 direct-labor hours. Actual variable and fixed overhead cost were $23,100 and $25,000, respectively. The scheduled production for the month was 5,000 units.
Required:
Calculate the following variances for December 2020, indicate whether each is favorable or unfavorable, and provide brief explanation of possible reasons for the related variances
- The Variable Overhead efficiency variance
- The Fixed Overhead spending variance
- The Fixed Overhead volume variance