The Sourdough 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 Sourdough Bread Company:

Direct manufacturing labor use ……………..0.02 hours per baguette

Variable manufacturing overhead ………..$10.00 per direct manufacturing labor-hour

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

Planned (budgeted) output ……………………..            3,100,000 baguettes

Actual production ……………………………….                 2,600,000 baguettes

Direct manufacturing labor ………………………                46,800 hours

Actual variable manufacturing overhead …………   $617,760

Required

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

2. Prepare a variance analysis of variable manufacturing overhead. Use Exhibit 8-4 (page 304) for reference.

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