Baking Bad bakes tarts 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 are some budget data for Baking Bad:

Baking Bad provides the following additional data for the year ended December 31, 2020:

Required

1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is Baking Bad budgeting?)
2. Prepare a variance analysis of variable manufacturing overhead. Use Exhibit 8-4 for reference.

3. Discuss the variances you have calculated and give possible explanations for them.

Transcribed Image Text:

Direct manufacturing labor use Variable manufacturing overhead 0.02 hours per tart £10.00 per direct manufacturing labor-hour