Assume that the McCain french fries manufacturing facility actually incurred $2,900,000 of manufacturing overhead for the year ($1,700,000 variable overhead and $1,200,000 fixed overhead). Based on the actual output of french fries, the flexible budget indicated that total manufacturing overhead should have been $2,982,500. Using a standard costing system, the company allocated $3,045,000 of manufacturing overhead to production. ($1,890,000 variable overhead and $1,155,000 fixed overhead). The actual machine hours during the year were 200,000, which was 10,000 hours less than the standard. McCain had estimated 215,000 hours when they created the budget.
1. Calculate the total manufacturing overhead variance. What does this tell managers?
2. Determine the overhead flexible budget variance. Determine the three separate variances that are involved in the flexible budget variance (the variable overhead spending and efficiency variances plus the fixed overhead budget variance). What does this tell managers?
3. Determine the production volume variance. What does this tell managers?
4. Double-check: Do the two variances (computed in Requirements 2 and 3) sum to the total overhead variance computed in Requirement 1?