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. The Brown Bread Company allocates fixed manufacturing overhead to products on the basis of standard direct manufacturing labor-hours. The following is some budget data for the Brown Bread Company for 2017 and additional infomation for the year ended Decmeber 31, 2017: E. (Click the icon to view the budget data.)

Answer 1

1) Actual fixed manufacturing overhead costs = $ 284,000

Flexible budget fixed manufacturing overhead costs = budgeted direct manufacturing labor hours X standard cost per direct labor hours = 66,000 hours X $ 4 = $ 264,000

Fixed manufacturing overhead costs applied :-

Standard hours = actual production X standard direct manufacturing labor hours per baguette = 3,200,000 X 0.02 hours = 64,000 hours

Fixed manufacturing overhead costs applied = 64,000 X $ 4 = $ 256,000

$ 20,000 unfavorable fixed manufacturing overhead spending variance = $ 284,000 - $ 264,000. Variance is unfavorable because the actual fixed manufacturing overhead costs are higher than budgeted costs.

$ 8,000 unfavorable fixed manufacturing overhead volume variance = $ 264,000 - $ 256,000. Variance is unfavorable because the volume of goods produced and sold was lower than expected.

2) Fixed manufacturing overhead is underallocated by $ 28,000. Because actual fixed manufacturing overhead i.e $ 284,000 is higher than fixed manufacturing overhead costs applied i.e $ 256,000.

3.) Unfavorable fixed manufacturing overhead spending variance is $ 20,000 due to actual fixed manufacturing overhead cost is higher than budgeted costs.

Unfavorable fixed manufacturing overhead volume variance is $ 8,000 due to volume of goods produced and sold is lower than expected.