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The Brown Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct materials and direct manufacturing labor. Variable

The Brown 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.

Direct manufacturing labor use

0.02 hours per baguette

Variable manufacturing overhead

$10.00 per direct manufacturing labor-hour

Planned (budgeted) output

3,300,000 baguettes

Actual production

3,000,000 baguettes

Direct manufacturing labor

54,100 hours

Actual variable manufacturing overhead

$708,710

The Brown Bread Company also allocates fixed manufacturing overhead to products on the basis of standard direct manufacturing labor-hours. For 2017, fixed manufacturing overhead was budgeted at $4.00 per direct manufacturing labor-hour. Actual fixed manufacturing overhead incurred during the year was $ 298,000.

REQUIREMENT

1.

Prepare a variance analysis of fixed manufacturing overhead cost.

2.

Is fixed overhead underallocated or overallocated? By what amount?

3.

Comment on your results. Discuss the variances and explain what may be driving them.

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