Marissa Designs, Inc., makes jewelry in the shape of geometric patterns. Each piece is handmade and takes an average of 1.5 hours to produce because of the intricate design and scrollwork. Marissa uses direct labor-hours to allocate the overhead cost to production. Fixed overhead costs, including rent, depreciation, supervisory salaries, and other production expenses, are budgeted at $ 10,800 per month. These costs are incurred for a facility large enough to produce 1,200 pieces of jewelry a month.
During the month of February, Marissa produced 720 pieces of jewelry and actual fixed costs were $ 11,400.

1. Calculate the fixed overhead spending variance and indicate whether it is favorable (F) or unfavorable (U).
2. If Marissa uses direct labor-hours available at capacity to calculate the budgeted fixed overhead rate, what is the production-volume variance? Indicate whether it is favorable (F) or unfavorable (U).
3. An unfavorable production-volume variance could be interpreted as the economic cost of unused capacity. Why would Marissa be willing to incur this cost?
4. Marissa’s budgeted variable cost per unit is $ 25, and it expects to sell its jewelry for $ 55 apiece. Compute the sales-volume variance and reconcile it with the production-volume variance calculated in requirement 2. What does each concept measure?

  • CreatedMay 14, 2014
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