Dorsey Foods processes bags of organic frozen vegetables sold at specialty grocery stores. Dorsey allocates manufacturing overhead based on direct labor hours. The company has budgeted fixed manufacturing for the year to be $630,000. The predetermined fixed manufacturing overhead rate is $15.50 per direct labor hour, while the standard variable manufacturing overhead rate is $0.85 per direct labor hour. The direct labor standards for each case are one-quarter of an hour.
The company actually processed 160,000 cases of frozen organic vegetables during the year and incurred $665,080 of manufacturing overhead. Of this amount, $628,000 was fixed. The company also incurred a total of 41,200 direct labor hours.
Requirements
1. How much variable overhead would have been allocated to production? How much fixed overhead would have been allocated to production?
2. Compute the variable MOH rate variance and the variable MOH efficiency variance. What do these variances tell managers?
3. Compute the fixed MOH budget variance and the fixed overhead volume variance. What do these variances tell managers?