Question

The Sourdough Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on the basis of standard direct manufacturing labor-hours. Following is some budget data for the Sourdough Bread Company:

Direct manufacturing labor use 0.02 hours per baguette

Variable manufacturing overhead $10.00 per direct manufacturing labor-hour

The Sourdough Bread Company provides the following additional data for the year ended December 31, 20X7:

Planned (budgeted) output 3,300,000 baguettes

Actual production 2,300,000 baguettes

Budgeted direct manufacturing labor                ??? hours

Actual Direct manufacturing labor (Actual) 40,200 hours

Actual variable manufacturing overhead $526,620

Required: (Show your calculations.)

       (1) What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is Sourdough Bread budgeting?) (2 points)

       (2) Calculate the spending variance, efficiency variance, and flexible-budget variance for the variable manufacturing overhead. (6 points) Remember to indicate whether the variance is favorable (F) or unfavorable (U).

       (3) For 20X7, fixed manufacturing overhead was budgeted at $3.00 per direct manufacturing labor-hour. Budgeted fixed manufacturing overhead for the year is $198,000 (=3,300,000*0.02*3). Actual fixed manufacturing overhead incurred during the year was $293,000. Calculate the spending variance, efficiency variance, flexible-budget variance, and production-volume variance for the fixed manufacturing overhead. Remember to indicate whether the variance is favorable (F) or unfavorable (U).

       (4) Is fixed overhead underallocated or overallocated? By what amount?

Answer 1