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. Indirect materials Indirect labor (Fixed) Manufacturing supervisors salaries (Fixed) Manufacturing office employees salaries (Fixed) Engineering costs Computer costs Electricity (Fixed) Manufacturing building depreciation (Fixed) Machinery depreciation (Fixed) Trucks and forklift depreciation Small tools (Fixed) Insurance (Fixed) Property taxes Total Standard (1,000 units) $ 12,000 43,000 22,500 13,000 27,000 10,000 2,500 8,000 3,000 1,500 Actual (900 units) $ 12,300 51,000 22,000 12,500 25,000 10,000 2,500 8,000 3,000 1,500 1,400 700 500 500 300 $144,000 300 $150,000 Discuss causes of the overhead variances. What can management do to improve its performance next month? Click if you would like to Show Work for this question: Open Show Work

Answer 1

Page-1 Answer: As per the given question Ara Cosilio and Associates is a medium sized company located near a looge metropolitan are in the midwest, the following are various causes of overhead variance: *Difference in production of Standard versus Actual pooduction. * Indirect labour and material price may increase causing unfavourable variance. * There may be planning error, while deciding standaod unit and cost there is wrong estimation. * Since overhead is applied based on direct labour hours, actual no. of hours are less than budget.

Page-2 The following are the management plans to improve performance for next monthi . * Overhead is applied on the based activity liens each overhead is variance should be calculated individually * Indirect material and labour usage should be controlled. * Budget should be prepared effectively. If you are answer please thumps up. satisfied with this give a positive