Chapter 8 is about planning and variance analysis of variable and fixed manufacturing overhead. Variable overhead spending and efficiency variance, and fixed overhead spending and production-volume variances are discussed, calculated and journalized. Also, 4-way, 3-way, 2-way and 1-way variance analysis is presented, along with the application of variance analysis in nonmanufacturing and service sectors. Calculate showing all computations and explain, within two sentences, Wiglet’s production volume variance given the following information.
Wriglet Company, which manufactures wig, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per wig are based on direct labor hours and are shown below:
Variable overhead (5 hours @ $12 per direct manufacturing labor hour) $ 60
Fixed overhead (5 hours @ $15* per direct manufacturing labor hour) 75
Total overhead per wig $135
*Based on capacity of 200,000 direct manufacturing labor hours per month.
The following information is available for the month of December: 46,000 wigs were produced although 40,000 wigs were scheduled to be produced. 225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000. Variable manufacturing overhead costs were $2,750,000. Fixed manufacturing overhead costs were $3,050,000.