Chapter 11, Problem 11.43BE

Calculate and interpret overhead variances (Learning Objectives 5 & 6)

Wright Foods processes bags of organic frozen vegetables sold at specialty grocery stores. Wright allocates manufacturing overhead based on direct labor hours. The company has budgeted fixed manufacturing for the year to be $626,000. The predetermined fixed manufacturing overhead rate is $16.60 per direct labor hour, while the standard variable manufacturing overhead rate is $0.85 per direct labor hour. The direct labor standards for each case is one-quarter (0.25) of an hour.

The company actually processed 160,000 cases of frozen organic vegetables during the year and incurred $681,200 of manufacturing overhead. Of this amount, $632,000 was fixed. The company also incurred a total of 41,000 direct labor hours.

Requirements

1. 1. How much variable overhead would have been allocated to production? How much fixed overhead would have been allocated to production?
2. 2. Compute the variable MOH rate variance and the variable MOH efficiency variance. What do these variances tell managers?
3. 3. Compute the fixed MOH budget variance and the fixed overhead volume variance. What do these variances tell managers?