Hartman company uses standard costing. The company has two manufacturing plants, one in Georgia and the other in Alabama. For the Georgia plant, Hartman has budeted output of 2,000,000 units. Standard labor-hours per unit are .50 and the variable overhead rate for the Georgia plant is 3.30 per direct labor-hour. Fixed overhead for the Georgia plant is budgeted at $2, 400,000 for the year.
For the Alabama plant, Hartman has budgeted annual output of 2,100,000 units with standard labor-hours also .50 per unit. However, the variable overhead rate for the Alabama plant is $3.10 per hour, and the budgeted fixed overhead for the year is only $2,205,000.
Firm management has always used variance analysis as a performance measure for the two plants and has compared the results of the two plants.
Tom Saban has just been hired as a new controller for Hartmann. Tom is good friends with the Alabama plant manager and wants him to get a favorable review. Tom suggests allocating the firm's budgeted common fixed costs of $3,150,000 to the two plants, but on the basis of one-third to the Alabama plant and two-thirds to the Georgia plant. His explanationmfor this allocation base is that Georgia is a more expensive state the Alabama.
At the end of the year, the Georgia plant reproted the following results:
output of 1,950,000
using 1,020,000 labor-hoursin total,
at a cost of $3,264,000 in variable overhead and
$2,440,000 in fixed overhead.
Actual results for the Alabama plant are
output of 2,175,000 units
using 1,225,000 labor-hours with
variable cost of 3,920,000 and
fixed overhead cost of $2,300,000.
The actual common fixed costs for the year were $3,075,000.
Required:
1. Compute the budgeted fixed costs per labor-hour for the fixed overhead separately for each plant:
a. Excluding allocated common fixed costs
b. Including allocated common fixed costs.
2. Compute the variable overhead spending variance and the variable overhead efficiency variance separately for each plant.
3. Compute the fixed overhead spending and volume variances for each plant:
a. Excluding allocated common fixed costs
b. Including allocated common fixed costs.
I have been reviewing the chapter for several hours but cannot figure out how to set the problm up. Any suggestions as to where to start? I am having difficuty setting up the problem and where to start.