Flexible Budgets, Overhead Cost Variances, and Management Control

Variable & Fixed Manufacturing Overhead Variance Analysis

The Jimmy 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 Jimmy Bread Company:

Planned (budgeted) output 3,100,000 baguettes

Direct manufacturing labor use 0.02 hours per baguette
Variable manufacturing overhead $10.00 per direct manufacturing labor-hour
Fixed manufacturing overhead $3.00 per direct manufacturing labor-hour

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

Actual production 2,600,000 baguettes

Direct manufacturing labor 46,800 hours
Actual variable manufacturing overhe $617,760 $13.20
Actual fixed manufacturing overhead $294,000

Always use cell references and formulas where appropriate to receive full credit.

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

62,000 hours

2. Prepare a variance analysis of variable manufacturing overhead.

Flexible Budget: Allocated:

Actual Costs Incurred: Actual Input Budgeted Input Budgeted Input
Quantity Quantity
Actual Input Quantity x Quantity x Allowed for Allowed for
Actual Rate Budgeted Rate
Actual Output x Actual Output x
Budgeted Rate Budgeted Rate

$617,760 $468,000 $520,000 $520,000

Variance $ Favorable /
(positive #s) Unfavorable
Spending variance $149,760 U
Efficiency variance $52,000 F
Flexible-budget variance $97,760 U

3. Prepare a variance analysis of fixed manufacturing overhead cost. Use the exhibit that shows the variance anal
a. For variances with a zero amount, leave the box empty; do not select a label or enter a zero.
b. Use the ABS function when calculating variances, and use the drop-down selections for F or U when describing t

Actual Costs Incurred

$294,000

$108,000 U
Spending variance

4. Is fixed overhead underallocated or overallocated? By what amount?

a. Use the ABS function when calculating the underallocated or overallocated amount.

Fixed manufacturing overhead is underallocated

 . The company has two
ufacturing overhead is
owing is some budget data

ng labor-hour
ng labor-hour

December 31, 2017:

ad? (That is, for how many

t that shows the variance analysis of fixed manufacturing overhead cost as a guide.
nter a zero.
ns for F or U when describing the variances.
Same Budgeted Lump Sum
Regardless of Output Level Flexible Budget
$186,000 $186,000

Efficiency variance

allocated by $138,000 .
 Allocated Overhead
$156,000

$30,000 U
Production-volume variance
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