Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows: SmallRegularDirect materials (oz.)6.010.00Direct labor (hrs.)0.10.15 The standard price paid per pound of direct materials is $1.60. The standard rate for labor is $8.00. Overhead is applied on the basis of direct labor hours. A plantwide rate is used. Budgeted overhead for the year is as follows: Budgeted fixed overhead$360,000 Budgeted variable overhead480,000 The company expects to work 12,000 direct labor hours during the year; standard overhead rates are computed using this activity level. For every small stapler produced, the company produces two regular staplers. Actual operating data for the year are as follows: Units produced: small staplers, 35,000; regular staplers, 70,000.Direct materials purchased and used: 56,000 pounds at $1.55—13,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct materials inventories.Direct labor: 14,800 hours—3,600 hours for the small stapler and 11,200 hours for the regular stapler. Total cost of direct labor: $114,700.Variable overhead: $607,500.Fixed overhead: $350,000. Required: Compute the variances for fixed and variable overhead. Prepare journal entries to record overhead activity. All variances are closed to Cost of Goods Sold.
What are the variances for fixed and variable overhead in the given scenario?
a) Fixed overhead variance: $10,000 favorable; Variable overhead variance: $27,500 favorable
b) Fixed overhead variance: $10,000 unfavorable; Variable overhead variance: $27,500 favorable
c) Fixed overhead variance: $10,000 favorable; Variable overhead variance: $27,500 unfavorable
d) Fixed overhead variance: $10,000 unfavorable; Variable overhead variance: $27,500 unfavorable
