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The question I am stuck on is "Compute overhead variances using a two-variance analysis. Budget...

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Accounting

The question I am stuck on is "Compute overhead variances using a two-variance analysis. Budget Variance =?" For the following problem.

Petrillo Company produces engine parts for large motors. The company uses a standard cost system for production costing and control. The standard cost sheet for one of its higher volume products (a valve) is as follows:

Direct materials (7 lbs. @ $5.40)$37.80Direct labor (1.75 hrs. @ $18)31.50Variable overhead (1.75 hrs. @ $4.00)7.00Fixed overhead (1.75 hrs. @ $3.00)5.25Standard cost per unit$81.55

During the year, Petrillo had the following activity related to valve production:

  1. Production of valves totaled 20,600 units.
  2. A total of 135,500 pounds of direct materials was purchased at $5.36 per pound.
  3. There were 10,000 pounds of direct materials in beginning inventory (carried at $5.40 per pound). There was no ending inventory.
  4. The company used 36,500 direct labor hours at a total cost of $656,270.
  5. Actual fixed overhead totaled $111,000.
  6. Actual variable overhead totaled $168,000.

Petrillo produces all of its valves in a single plant. Normal activity is 20,000 units per year. Standard overhead rates are computed based on normal activity measured in standard direct labor hours.

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