Question

Expand Your Critical Thinking 24-02 e (Essay) Ana Carillo and Associates is a medium-sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size. One such non-custom model is called Luxury Base Frame. Normal production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 900 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows. Standard Actual (1,000 units) (900 units) $ 12,300 $ 12,000 Indirect materials Indirect labor 43,000 51,000 (Fixed) Manufacturing supervisors salaries 22,500 22,000 (Fixed) Manufacturing office employees salaries 13,000 12,500 (Fixed) Engineering costs 27,000 25,000 Computer costs 10,000 10,000 Electricity 2,500 2,500 (Fixed) Manufacturing building depreciation 8,000 8,000 (Fixed) Machinery depreciation 3,000 3,000 (Fixed) Trucks and forklift depreciation 1,500 1,500 Small tools 1,400 700 (Fixed) Insurance 500 500 (Fixed) Property taxes 300 300 $144,000 $150,000 Total (e) Discuss causes of the overhead variances. What can management do to improve its performance next month?

Total Overhead Variance (20400) unfavorable

Answer 1

following are various caus of overhead Variance et difference In Production of a Standard verus actual production on 1 & Indirect Labour and material Price may Increase ecansin Unfavorable itallance. there may be planning error. While deciding no of Standard Unit and cost a there is Wrong estimation! Since overhead is applied ! Based on dwiect Labour Hours .actual no of hosrs are Less then Budget 1

6 managment Plan to improve performance for next month of Overhead is applied on the Based a chvity he cut each Overhead is God variance should be calculated Ondividually... Indirect material and Labour - usage ca should be controlled 1 Budget should be prepare