Faucher Foods processes bags of organic frozen vegetables sold at specialty grocery stores. Faucher allocates manufacturing overhead based on direct labor hours. Faucher has budgeted fixed manufacturing overhead for the year to be $630,000. The predetermined fixed manufacturing overhead rate is $16 per direct labor hour, while the standard variable manufacturing overhead rate is $0.75 per direct labor hour. The direct labor standard for each case is one-quarter (0.25) of an hour.
The company actually processed 160,000 cases of frozen organic vegetables during each year and incurred $679,080 of manufacturing overhead. Of this amount, $640,000 was fi xed. 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?