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. 3. Discuss the variances you have calculated and give possible explanations for them.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Variable manufacturing overhead
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.
3. Discuss the variances you have calculated and give possible explanations for them.
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