Question
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 |
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Variable manufacturing overhead | $10.00 per direct manufacturing labor-hour |
Planned (budgeted) output | 3,300,000 baguettes |
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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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