The Crowening has gotten through their first full year of operations! They are curious to see how
Question:
The Crowening has gotten through their first full year of operations! They are curious to see how they did compared to how they thought they would do at the beginning of the year. They’ve enlisted you to help them with some variance analysis. They tell you the following:
They started the year anticipating sales of 19,000 costumes. They expected each costume to take 2 hours of work (at a cost of $12/hour) and to take 5 yards of direct material (at a cost of $3/yard). They estimated variable manufacturing overhead to be $100,000. Fixed manufacturing overhead was estimated to be $70,000.
They ultimately sold 20,000 costumes. They used 6 yards of material per costume and paid $2.75/yard. The purchase department bought 100,000 yards of direct material because of the good deal they got on the price. It took workers 2.25 hours of direct labor per costume. The workers’ union negotiated a 15% pay increase for the workers at the start of production but after the Crowening had prepared their master budget.
At the end of the year, the company spent $101,000 on variable manufacturing overhead and $62,000 on fixed manufacturing overhead. They used direct labor hours as the cost allocation base.
- Calculate Variable MOH variances.
- Provide a paragraph memo to Johnny and Moira summarizing your findings and explaining their variances to them. Make sure to include reasons why their variances were favorable or unfavorable and whether those variances are good or bad for business.
Marketing Real People, Real Choices
ISBN: 978-0132913171
4th Canadian Edition
Authors: Michael R. Solomon, Greg W. Marshall, Elnora W. Stuart, J. Brock Smith, Sylvain Charlebois, Bhupesh Shah