The Quick Bread Company bakes baguettes 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 is some budget data for the Quick Bread Company:

Data Table

Direct manufacturing labor use	0.02 hours per baguette
Variable manufacturing overhead	$10.00 per direct manufacturing labor-hour

The Quick Bread Company provides the following additional data for the year ended December 31, 2020:

Data Table

Planned (budgeted) output	2,900,000 baguettes
Actual production	2,400,000 baguettes
Direct manufacturing labor	42,900 hours
Actual variable manufacturing overhead	$587,730

Requirement 1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is French Bread budgeting?)

The denominator level is

hours.

Requirement 2. Prepare a variance analysis of variable manufacturing overhead.

Begin by calculating the following amounts for the variable overhead that will be used to calculate the variances.

	Actual Costs Incurred	Actual Input Budgeted Rate	Flexible Budget	Allocated Overhead
Variable MOH	$	$	$	$

Now complete the 4-variance analysis using the amounts you calculated above. (If no variance exists leave the dollar value blank. Label the variance as favorable (F), unfavorable (U) or never a variance (N).)

4-Variance Analysis	Spending Variance		Efficiency Variance		Production-Volume Variance
Variable MOH		U		F		N

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

The spending variance is unfavorable because variable manufacturing overhead was ______ % higher than planned. A possible explanation could be an increase in energy rates relative to the rate per standard labor-hour assumed in the flexible budget.

The flexible-budget variance of ________ is unfavorable because the efficiency variance was not large enough to compensate for the spending variance.