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. Following is some budget data for the Brown Bread Company:
Budget data
Direct manufacturing labor use
0.02 hours per baguette
Variable manufacturing overhead
$10.00 per direct manufacturing labor-hour
The Brown Bread Company provides the following additional data for the year ended December 31, 2017:
Planned (budgeted) output | 3,500,000 | baguettes |
Actual production | 3,200,000 | baguettes |
Direct manufacturing labor | 58,300 | hours |
Actual variable manufacturing overhead | $781,220 |
1. | What is the denominator level used for allocating variable manufacturingoverhead? (That is, for how many direct manufacturing labor-hours is Brown Bread budgeting?) |
2. | Prepare a variance analysis of variable manufacturing overhead. |
3. | Discuss the variances you have calculated and give possible explanations for them. |
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