Question

The Boston 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

Boston Bread​ Company:

Direct manufacturing labor use	0.02 hours per baguette
Variable manufacturing overhead	$10.00 per direct manufacturing labor-hour

The

Boston

Bread Company provides the following additional data for the year ended December​ 31,

2017

​:

Planned (budgeted) output	3,700,000 baguettes
Actual production	2,400,000 baguettes
Direct manufacturing labor	42,400 hours
Actual variable manufacturing overhead	$555,440

.

Requirement 1. What is the denominator level used for allocating variable manufacturing​ overhead? (That​ is, for how many direct manufacturing​ labor-hours is

Boston

Bread​ budgeting?)

The denominator level is

hours.

Requirement 2. Prepare a variance analysis of variable manufacturing overhead.

Begin by calculating the following amounts for the variable overhead that will be used to calculate the variances.

		Actual Input
	Actual Costs	×	Flexible	Allocated
	Incurred	Budgeted Rate	Budget	Overhead
Variable MOH

Now complete the​ 4-variance analysis using the amounts you calculated above. ​(If no variance exists leave the dollar value blank. Label the variance as favorable​ (F), unfavorable​ (U) or never a variance​ (N).)

4-Variance	Spending		Efficiency		Production-Volume
Analysis	Variance		Variance		Variance
Variable MOH

Requirement 3. Discuss the variances you have calculated and give possible explanations for them.

The spending variance is		because variable manufacturing overhead was		%		than planned. A possible
explanation could be a(n)		in energy rates relative to the rate per standard labor-hour assumed in the flexible budget.

The efficiency variance is

▼

favorable

unfavorable

because the actual number of direct manufacturing​ labor-hours required was

▼

higher

lower

than the number of hours in the flexible budget. Labor was

▼

less

more

efficient in producing the baguettes than management had anticipated in the budget. This could occur because of

▼

a decline in

improved

morale in the​ company, which could result from an increase in wages or an improvement in the compensation scheme.

The flexible-budget variance of				is		because the efficiency variance was		to
compensate for the spending variance.

Answer 1