Mondragon SA assembles its CardioX product at its Toledo plant. Manufacturing overhead (both variable and fixed) is allocated to each CardioX unit using budgeted assembly-time hours. Budgeted assembly time per CardioX product is 2 hours. The budgeted variable manufacturing overhead cost per assembly-time hour is €40. The budgeted number of CardioX units to be assembled in March 2018 is 8000. Budgeted fixed manufacturing overhead costs are €480,000.

Actual variable manufacturing overhead costs for March 2018 were €610,500 for 7400 units actually assembled. Actual assembly-time hours were 16,280. Actual fixed manufacturing overhead costs were €503,420. 

Required 

1. Conduct a 4-variance analysis (Exhibit 16.3) for Mondragon’s Toledo plant. 

2. Comment on the results in requirement 1. 

3. How does the planning and control of variable manufacturing overhead costs differ from that of fixed manufacturing overhead costs?

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Variance analysis: variable and fixed manufacturing overhead for the Sofiya Company Exhibit 16.3 Panel A: Variable manufacturing overhead Flexible budget (Budgeted input allowed for actual output achieved x Budgeted rate) Actual costs incurred Actual input* X Budgeted rate (2) (1) (3) (4500 x €30) (0.40 x 10 000 x €30) €130 500 €135 000 €120 000 €4500 Ft €15 000 U Spending variance Efficiency variance €10 500 U Flexible-budget variance €10 500 U Under- or overallocated variable overhead (Total variable-overhead variance) Panel B: Fixed manufacturing overhead Allocated (Budgeted Same lump sum regardless of output level (2) Same lump sum regardless of output level (3) input* allowed for actual output achieved x Budgeted rate) (4) Actual costs incurred (1) (0.40 x 10 000 x €57.50) €285 000 €276 000 €276 000 €230 000 €9000 U €46 000 U Spending variance Never a variance Production-volume variance €9000 U €46 000 U Flexible-budget Production-volume variance variance €55 000 U Under- or overallocated fixed overhead (Total fixed-overhead variance) * For overhead costs, input refers to units of cost-allocation base. +F = favourable effect on operating profit; U = unfavourable effect on operating profit.