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. Variable manufacturing overhead is allocated to products on the basis of standard direct manufacturing​ labor-hours. Following is some budget data for the Brown Bread​ Company:

Budget data

Direct manufacturing labor use

0.02 hours per baguette

Variable manufacturing overhead

$10.00 per direct manufacturing labor-hour

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

Planned (budgeted) output	3,500,000	baguettes
Actual production	3,200,000	baguettes
Direct manufacturing labor	58,300	hours
Actual variable manufacturing overhead	$781,220

1.	What is the denominator level used for allocating variable manufacturing​overhead? (That​ is, for how many direct manufacturing​ labor-hours is Brown Bread​ budgeting?)
2.	Prepare a variance analysis of variable manufacturing overhead.
3.	Discuss the variances you have calculated and give possible explanations for them.

Answer 1