Question

The Best of Italy Pizza Restaurant make pizza for in-house and on-line customers. 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 Best of Italy Pizza:

Direct manufacturing labor use	0.42 hours per pizza
Variable manufacturing overhead	$4.00 per direct manufacturing labor-hour

The Best of Italy Pizza Company provides the following additional data for the year ended December 31, 2019:

Planned (budgeted) output	54,000 pizza
Actual production	43,200 pizza
Direct manufacturing labor	14,429 hours
Actual variable manufacturing overhead	$86,000

The Best of Italy Company also allocates fixed manufacturing overhead to products on the basis of standard direct manufacturing labor-hours. For 2019, fixed manufacturing overhead was budgeted at $3.00 per direct manufacturing labor-hour. Actual fixed manufacturing overhead incurred during the year was $73,000.

Required:

1.      Prepare a variance analysis of variable manufacturing overhead.

2.      Discuss the variances you have calculated and give possible explanations for them.

3.      Prepare a variance analysis of fixed manufacturing overhead cost.

4.      Is fixed overhead under-allocated or over-allocated? By what amount?

5.      Comment on your results. Discuss the variances and explain what may be driving them.

Answer 1

Answer :

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