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Variance Analysis

Please review my computations. I'm not sure about my answer for part A and I need help with part E. Thank you, I appreciate your help.

Mo Vaughn and Associates is a medium-sized company located near a large metropoliatan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive home, resturants, and hotels. Although some of the work is custom, many of the cabinets are a standard size.

One such non-custom model is clled Luxury Base Frame. Standard production is 1,000 units. Each unit has a dictct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 900 units were producted; 4,500 direct labor hours were allowed for standard production, bur only 4,000 hours were used. Standard and actual overhead costs were as follows.

Standard (1,000 units) Actual (900 units)
Indirect materials $12,000 $12,300
Indirect labor 43,000 51,000
(Fixed) Manufacturing 22,000 22,000
superfisors salaries
(Fixed) Manufacturing office 13,000 11,500
employees salarees
(Fixed) Engineering costs 27,000 25,000
Computer costs 10,000 10,000
Electricity 2,500 2,500
(Fixed) Manufacturing building 8,000 8,000
(Fixed) Machinery depreciation 3,000 3,000
(Fixed) Trucks and forklift 1,500 1,500
Small tools 700 1,400
(Fixed) Insurance 500 500
(Fixed) Property taxes 300 300
Total $143,500 $149,000

a. Determine the overhead application rate.
b. Determine how much overhead was applied to production.
c. Calculate the controllable overhead variance and the overhead volume variance.
d. Decide which overhead variances should be investigated.
e. Discuss causes of the overhead variances. What can management do to improve its performance next month?


Solution Preview

Your answer to part A is correct.

See the file for answer to D

Discuss causes of the overhead variances. What can management do to improve its performance next month?
The causes of the overhead variances could be -
a. Indirect labor - The reason could be that the labor price is higher than the budgeted labor price. The budget is ...

Solution Summary

The solution has overhead variance analysis for Mo Vaughn Associates and the causes for variance