, Able Control Company, which manufactures electrical switches, uses a standard cost system and carries all , inventory at standard cost. The standard factory overhead cost per switch is based on DLHs. , , , ,Problem Information , , ,Variable overhead 5 hours at $8.00 /hour $40.00 ,Fixed overhead* 5 hours at $12.00 /hour $60.00 ,Total standard overhead cost per unit produced $100.00 , ,* Based on a practical capacity of 300,000 DLHs per month. , ,The following information is for the month of October: , Actual units produced 56,000 , Practical capacity (in units) 60,000 , Actual DLHs worked 275,000 , Actual DL cost incurred $2,550,000 , Actual variable overhead costs incurred $2,340,000 , Actual fixed overhead costs incurred $3,750,000 , , The production manager argued during the last performance review that the company should use a more up-to-date base , for charging factory overhead costs to production. She commented that her factory had been highly automated in the last , two years and, as a result, now has hardly any labor. The factory hires only highly skilled workers to set up production runs , and to do periodic adjustments of machinery whenever the need arises. , ,Requirements , ,1. Compute the following for Able Control Company: , a. The fixed overhead spending variance for October. , b. The factory overhead production-volume variance for October. , c. The variable overhead spending variance for October. , d. The variable overhead efficiency variance for October. ,2. Comment on the implications of the variances and suggest any action that the firm should take to improve , its operations. , ,
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