Able Control Company which manufactures electrical switches uses a standard co

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 300000 DLHs per month.

The following information is for the month of October:

Actual units produced 56000

Practical capacity (in units) 60000

Actual DLHs worked 275000

Actual DL cost incurred $2550000

Actual variable overhead costs incurred $2340000

Actual fixed overhead costs incurred $3750000

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.