11#2

Grand Display

is a manufacturer of large flower pots for urban settings. The company has these standards:

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Requirements

1. Compute the variable manufacturing overhead variances. What do each of these variances tell management?

2. Compute the fixed manufacturing overhead variances. What do each of these variances tell management?

Requirement 1. Compute the variable manufacturing overhead variances. What do each of these variances tell management? (Enter the variances as positive numbers. Enter the currency amounts in the formulas to the nearest cent, then round the final variance amounts to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U).)

Begin by computing the variable manufacturing overhead rate variance. First determine the formula for the rate variance, then compute the rate variance for variable manufacturing overhead.

								Variable overhead
		(		-		)	=	rate variance
		(		-		)	=

Now compute the variable manufacturing overhead efficiency variance. First determine the formula for the efficiency variance, then compute the efficiency variance for variable manufacturing overhead.

								Variable overhead
		(		-		)	=	efficiency variance
		(		-		)	=

What do each of these variances tell management?

The

favorable

unfavorable

variable manufacturing overhead (MOH) rate variance tells managers that

actual manufacturing overhead costs

direct labor costs

direct labor hours

direct materials

were

higher

lower

than expected. The

favorable

unfavorable

variable MOH efficiency variance tells managers that actual

direct materials

direct labor hours

manufacturing overhead costs

were

higher

lower

than

budgeted direct material costs

budgeted manufacturing overhead costs

standard hours allowed

.

Requirement 2. Compute the fixed manufacturing overhead variances. What do each of these variances tell management? (Abbreviations used: MOH = manufacturing overhead. Enter the variances as positive numbers. Label the variances as favorable (F) or unfavorable (U).)

Begin by computing the fixed manufacturing overhead budget variance. First determine the formula for the budget variance, then compute the budget variance for fixed manufacturing overhead.

					Fixed MOH
		-		=	budget variance
		-		=

Now compute the fixed manufacturing overhead volume variance. First determine the formula for the volume variance, then compute the volume variance for fixed manufacturing overhead.

					Fixed MOH
		-		=	volume variance
		-		=

What do each of these variances tell management?

The

favorable

unfavorable

fixed overhead budget variance tells managers that

less fixed overhead costs were incurred than were budgeted for

more fixed overhead costs were incurred than were budgeted for

production volume was greater than anticipated

production volume was less than anticipated

. The

favorable

unfavorable

fixed overhead volume variance tells managers that

less fixed overhead costs were incurred than were budgeted for

more fixed overhead costs were incurred than were budgeted for

production volume was greater than anticipated

production volume was less than anticipated

Standard price and volume

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Direct materials (resin). . . . . . . . . . . . . . . . . . . . . . . . . . .	8 pounds per pot at a cost of $6.00 per pound
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5.0 hours at a cost of $21.00 per hour
Standard variable manufacturing overhead rate. . . . .	$3.00 per direct labor hour
Budgeted fixed manufacturing overhead. . . . . . . . . . .	$73,500
Standard fixed MOH rate. . . . . . . . . . . . . . . . . . . . . . . . .	$9.00 per direct labor hour (DLH)

Actual results

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Grand Display

allocated fixed manufacturing overhead to production based on standard direct labor hours. Last month, the company reported the following actual results for the production of

1,700

flower pots:

Direct materials. . . . . . . . . . . . . . . . . . .	Purchased 14,610 pounds at a cost of $6.20 per pound; used 14,110 pounds to produce 1,700 pots
Direct labor. . . . . . . . . . . . . . . . . . . . . . .	Worked 5.4 hours per flower pot (9,180 total DLH) at a cost of $20.00 per hour
Actual variable manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . .	$3.70 per direct labor hour for total actual variable manufacturing overhead of $33,966
Actual fixed manufacturing overhead	$72,900
Standard fixed manufacturing overhead allocated based on actual production. . . . . . . . . . . . . . . . . . . . . . .	$76,500