You do not have enough data to perform a detailed analysis of variance for overhead costs. However, you do have enough data to: 1) estimate a flexible budget for overhead, and 2) calculate a spending variance. Do this and then discuss what additional information would be needed to decompose the spending variance further.

Exhibit 2 2004 Production Costs Actual production: 10,800 bicycles Frame assembly: Steel tubing Paint Labor Total frame $3,572,100 28,187 $ 1.528.050 $ 5,128,337 (113,400 lbs. @ $31.50/1b.) (1,375 gals. @ $20.50/gal.) (100,200 hrs. @ $15.25/hr.) Wheel assembly Parts Rework parts Labor Total wheel $1,317,600 25,000 74.250 $ 1,416,850 (10,800 kits @ $122.00/kit) (spokes and rims) (5,500 hrs. @ $13.50/hr.) Final assembly Parts Rework parts Labor Total final assembly $ 3,963,600 45,000 116,000 $ 4,124,600 (10,800 kits @ $367.00/kit) (miscellaneous parts) (8,000 hrs. @ $14.50/hr.) Overhead costs: Rent Office staff Depreciation Other costs Total overhead $ 250,000 100,000 100,000 850,000 $ 1,300,000 Total Annual Costs $11.969.787 Exhibit 1 2004 Production Budget Budget based on 10,000 bicycles production Frame assembly: Steel tubing Paint Labor Total frame $ 3,300,000 25,000 $ 1.500.000 $ 4,825,000 (110,000 lbs. @ $30.00/lb.) (1,250 gals. @ $20.00/gal.) (100,000 hrs. @ $15.00/hr.) Wheel assembly Parts Labor Total wheel $ 1,200,000 65,000 $ 1,265,000 (10,000 kits @ $120.00/kit) (5,000 hrs. @ $13.00/hr.) Final assembly: Parts Labor Total final assembly $3,500,000 105,000 $ 3,605,000 (10,000 kits @ $350.00/kit) (7,500 hrs. @ $14.00/hr.) Overhead costs: Rent Office staff Depreciation Other costs Total overhead $ 250,000 100,000 100,000 750,000 $ 1,200,000 (estimated to be 2/3 variable) Total Annual Costs $10,895,000