James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget: Operating Levels Overhead Budget 80% Production in units 8,000 Standard direct labor hours 32,000 Budgeted overhead Variable overhead costs Indirect materials $ 22,400 Indirect labor 32,000 Power 6,400 Maintenance 3,200 Total variable costs 64,000 Fixed overhead costs Rent of factory building 16,000 Depreciation—Machinery 11,300 Supervisory salaries 30,300 Total fixed costs 57,600 Total overhead costs $ 121,600 During May, the company operated at 90% capacity (9,000 units) and incurred the following actual overhead costs: Overhead costs (actual) Indirect materials $ 22,400 Indirect labor 35,850 Power 7,200 Maintenance 4,405 Rent of factory building 16,000 Depreciation—Machinery 11,300 Supervisory salaries 33,100 Total actual overhead costs $ 130,255 1. Compute the overhead controllable variance and classify it as favorable or unfavorable. 2. Compute the overhead volume variance and classify it as favorable or unfavorable. 3. Prepare an overhead variance report at the actual activity level of 9,000 units.