The Boston Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on the basis of standard direct manufacturing labor-hours. Following is some budget data for the

Boston Bread Company:

Direct manufacturing labor use	0.02 hours per baguette
Variable manufacturing overhead	$10.00 per direct manufacturing labor-hour

The

Boston

Bread Company provides the following additional data for the year ended December 31,

2017

:

Planned (budgeted) output	3,700,000 baguettes
Actual production	2,400,000 baguettes
Direct manufacturing labor	42,400 hours
Actual variable manufacturing overhead	$555,440

.

Requirement 1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is

Boston

Bread budgeting?)

The denominator level is

hours.

Requirement 2. Prepare a variance analysis of variable manufacturing overhead.

Begin by calculating the following amounts for the variable overhead that will be used to calculate the variances.

		Actual Input
	Actual Costs		Flexible	Allocated
	Incurred	Budgeted Rate	Budget	Overhead
Variable MOH

Now complete the 4-variance analysis using the amounts you calculated above. (If no variance exists leave the dollar value blank. Label the variance as favorable (F), unfavorable (U) or never a variance (N).)

4-Variance	Spending		Efficiency		Production-Volume
Analysis	Variance		Variance		Variance
Variable MOH

Requirement 3. Discuss the variances you have calculated and give possible explanations for them.

The spending variance is		because variable manufacturing overhead was		%		than planned. A possible
explanation could be a(n)		in energy rates relative to the rate per standard labor-hour assumed in the flexible budget.

The efficiency variance is

favorable

unfavorable

because the actual number of direct manufacturing labor-hours required was

higher

lower

than the number of hours in the flexible budget. Labor was

less

more

efficient in producing the baguettes than management had anticipated in the budget. This could occur because of

a decline in

improved

morale in the company, which could result from an increase in wages or an improvement in the compensation scheme.

The flexible-budget variance of				is		because the efficiency variance was		to
compensate for the spending variance.