Smith Company uses standard costing. The company has two manufacturing plants, one in Montana and the other in Nevada. For the Montana plant, Smith has budgeted annual output of 2,000,000 units. Standard labor- hours per unit are 0.50, and the variable overhead rate for the Montana plant is $3.30 per direct labor- hour. Fixed overhead for the Montana plant is budgeted at $ 2,400,000 for the year. For the Nevada plant, Smith has budgeted annual output of 2,100,000 units with standard labor-hours also 0.50 per unit. However, the variable overhead rate for the Nevada plant is $3.10 per hour, and the budgeted fixed overhead for the year is only $2,205,000. Firm management has always used variance analysis as a performance measure for the two plants and has compared the results of the two plants. Bill Johnson has just been hired as a new controller for Smith. Bill is good friends with the Nevada plant manager and wants him to get a favorable review. Bill suggests allocating the firms budgeted com-mon fixed costs of $3,150,000 to the two plants, but on the basis of one- third to the Nevada plant and two-thirds to the Montana plant. His explanation for this allocation base is that Montana is a more expensive state than Nevada. At the end of the year, the Montana plant reported the following actual results: output of 1,950,000 using 1,020,000 labor- hours in total, at a cost of $3,264,000 in variable overhead and $ 2,440,000 in fixed overhead.

Actual results for the Nevada plant are an output of 2,175,000 units using 1,225,000 labor- hours with a variable cost of $3,920,000 and fixed overhead cost of $2,300,000. The actual common fixed costs for the year were $3,075,000.

Requirements

1) Compute the budgeted fixed cost per labor- hour for the fixed overhead separately for each plant:

a. Excluding allocated common fixed costs. (2 points)

b. Including allocated common fixed costs. (2 points)

2) Compute the variable overhead spending variance and the variable overhead efficiency variance separately for each plant. (4 points)

3) Compute the fixed overhead spending and volume variances for each plant:

a. Excluding allocated common fixed costs. (4 points)

b. Including allocated common fixed costs. (4 points)