Ana Carillo and Associates is a medium-sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size.

One such non-custom model is called Luxury Base Frame. Normal production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 900 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows.

Standard

(1,000 units)Actual

(900 units)Indirect materials$12,000$12,300Indirect labor43,00051,000(Fixed) Manufacturing supervisors salaries22,50022,000(Fixed) Manufacturing office employees salaries13,00012,500(Fixed) Engineering costs27,00025,000Computer costs10,00010,000Electricity2,5002,500(Fixed) Manufacturing building depreciation8,0008,000(Fixed) Machinery depreciation3,0003,000(Fixed) Trucks and forklift depreciation1,5001,500Small tools7001,400(Fixed) Insurance500500(Fixed) Property taxes300300Total$144,000$150,000

(e)

Discuss causes of the overhead variances. What can management do to improve its performance next month?