Nina Garcia is the newly appointed president of Laser Products. She is examining the May 2017 results for the Aerospace Products Division. This division manufactures solar arrays for satellites. Garcia’s current concern is with manufacturing overhead costs at the Aerospace Products Division. Both variable and fixed overhead costs are allocated to the solar arrays on the basis of laser-cutting-hours. The following budget information is available:
Budgeted variable overhead rate $200 per hour
Budgeted fixed overhead rate $240 per hour
Budgeted laser-cutting time per solar array 1.5 hours
Budgeted production and sales for May 2017 5,000 solar arrays
Budgeted fixed overhead costs for May 2017 $1,800,000
Actual results for May 2017 are as follows:
Solar arrays produced and sold 4,800 units
Laser-cutting-hours used 8,400 hours
Variable overhead costs $1,478,400
Fixed overhead costs $1,832,200
1. Compute the spending variance and the efficiency variance for variable overhead.
2. Compute the spending variance and the production-volume variance for fixed overhead.
3. Give two explanations for each of the variances calculated in requirements 1 and 2.