Reference no: EM133078229

Question - Dunder Mifflin Paper Company has provided the following standard costing data, per unit below:

Direct materials 90 kg at 4 $ per kg

Direct labour 4 hours at 25 $ / hour

Variable Overhead 4 hours at 8 $ / DL hours

Fixed Overhead 30 $

The company expected to produce 1,100 units for the upcoming month, August 2016.

During August, 1,050 units were produced. The company purchased and used 97,000 kilograms of material at a total cost of $368,600. Direct labor used was 4,100 hours at a total cost of $110,700. Variable overhead cost was $35,200. Actual fixed overhead cost was $30,900. Fixed overhead is allocated based on direct labor hours. The normal volume is the same as the planned volume for August.

Required -

a. Compute the variable overhead spending variance. Indicate if it is favorable (F) or unfavorable (U).

b. Compute the variable overhead efficiency variance. Indicate if it is favorable (F) or unfavorable (U).

c. Compute the underapplied or overapplied variable overhead variance for the month. Indicate if it is favorable (F) or unfavorable (U).

d. Michael Scott has summoned you, his assistant Dwight, to his office. He tells you he is an expert on variance, but would like you to explain him:

-Is an unfavourable variance always negative? Provide an example to support your answer

-Is a favourable variance always positive? Provide an example to support your answer

-What could cause an unfavourable labour variance, and should managers always be punished for them? Explain your answer.