The Roti 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 Roti

Bread Company:

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

The Roti Bread Company provides the following additional data for the year ended December 31, 2017:

Planned (budgeted) output	3,400,000 baguettes
Actual production	3,000,000 baguettes
Direct manufacturing labor	54,100 hours
Actual variable manufacturing overhead	$751,990

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

Roti

Bread budgeting?)

The denominator level is

68,000

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 Costs Incurred	Actual Input x Budget Rate	Flexible Budget	Allocated 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 Analysis	Spending Variance		Efficiency Variance		Production-Volume Variance
Variable MOH		U		F		N

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

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

The efficiency variance is favorable because the actual number of direct manufacturing labor-hours required was lower than the number of hours in the flexible budget. Labor was more efficient in producing the baguettes than management had anticipated in the budget. This could occur because of 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 unfavorable because the efficiency variance was not large enough to compensate for the spending variance.