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Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 126,000 units requiring 504,000 direct labor hours. (Practical capacity is 524,000 hours.) Annual budgeted overhead costs total $826,560, of which $599,760 is fixed overhead. A total of 119,100 units using 502,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $261,400, and actual fixed overhead costs were $555,350. Required: 1. Compute the fixed overhead spending and volume variances. Fixed Overhead Spending Variance 44,410 Favorable Fixed Overhead Volume Variance s -32,844 Unfavorable 2. Compute the variable overhead spending and efficiency variances. Do not round intermediate calculations Variable Overhead Spending Variance 35,500 Favorable Variable Overhead Efficiency Variance 11,520 Unfavorable Rico Company produces custom-made machine parts. Rico recently has implemented an activity-based management (ABM) system with the objective of reducing costs. Rico has begun analyzing each activity to determine ways to increase its efficiency. Setting up equipment was among the first group of activities to be carefully studied. The study revealed that setup hours was a good driver for the activity. During the last year, the company incurred fixed setup costs of $587,520 (salaries of 16 employees). The fixed costs provide a capacity of 34,560 hours (2,160 per employee at practical capacity). The setup activity was viewed as necessary, and the value-added standard was set at 2,160 hours. Actual setup hours used in the most recent period were 32,600. Required: 1. Calculate the volume and unused capacity variances for the setup activity. Enter all amounts as positive values. Volume Variance Unused Capacity Variance 2. Prepare a report that presents value-added, non-value-added, and actual costs for setup. Rico Company Value- and Non-Value Added Cost Report Value Added Non-Value Added Actual Setting up Favorable Unfavorable

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