Problem
The Rye 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 Rye Bread Company:
Direct manufacturing labor use 0.02 hours per baguette
Variable manufacturing overhead $10.00 per direct manufacturing labor-hour
The Rye Bread Company provides the following additional data for the year ended December? 31, 2014?:
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Planned (budgeted) output
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3,700,000
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baguettes
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|
Actual production
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2,500,000
|
baguettes
|
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Direct manufacturing labor
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44,700
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hours
|
|
Actual variable manufacturing overhead
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$594,510
|
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Requirments
1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is Rye Bread budgeting?)
2. Prepare a variance analysis of variable manufacturing overhead.
3. Discuss the variances you have calculated and give possible explanations for them.