Baking Bad also allocates fixed manufacturing overhead to products on the basis of standard direct manufacturing labor-hours. For 2020, fixed manufacturing overhead was budgeted at £4.00 per direct manufacturing labor-hour. Actual fixed manufacturing overhead incurred during the year was £272,000.

Required

1. Prepare a variance analysis of fixed manufacturing overhead cost. Use Exhibit 8-4 as a guide.

 

2. Is fixed overhead underallocated or overallocated? By what amount?3. Comment on your results. Discuss the variances and explain what may be driving them.

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PANELA: Variable (Manufacturing) Overhead Actual Costs Incurred: Actual Input Quantity x Actual Rate (1) (4,500 hrs. x $29/hr.) $130,500 Actual Input Quantity x Budgeted Rate (2) Actual Costs Incurred (1) $285,000 (4,500 hrs. x $30/hr.) $135,000 $4,500 F Spending variance PANEL B: Fixed (Manufacturing) Overhead $10,500 U Flexible-budget variance Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (2) $276,000 $9,000 U Spending variance $15,000 U Efficiency variance Flexible Budget: Budgeted Input Quantity Allowed for Actual Output x Budgeted Rate (3) (0.40 hrs/unit x 10,000 units x $30/hr.) (0.40 hrs/unit x 10,000 units x $30/hr.) (4,000 hrs. x $30/hr.) $120,000 (4,000 hrs. x $30/hr.) $120,000 Never a variance $9,000 U Flexible-budget variance $10,500 U Underallocated variable overhead (Total variable overhead variance) Flexible Budget: Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (3) $276,000 Allocated: Budgeted Input Quantity Allowed for Actual Output x Budgeted Rate (4) Never a variance Never a variance Allocated: Budgeted Input Quantity Allowed for Actual Output x Budgeted Rate (4) $55,000 U Underallocated fixed overhead (Total fixed overhead variance) 10.40 hrs./unit x 10,000 units x $57.50/hr.) (4,000 hrs. x $57.50/hr.) $230,000 $46,000 U Production-volume variance $46,000 U Production-volume variance