Compute the variable overhead spending variance

Reference no: EM132985128

Question: Jimbova is a furniture manufacturing company headquartered in Melbourne, Australia. Facing increased price competition, the company has been expanding its product line to maintain its competitive advantage. In the past quarter, the company produced a newly designed desk, which is mainly targeted at people working at home due to COV-19. Its overhead costs are allocated using a plant-wide overhead rate based on direct labor hours. For the quarter ending March 30, 2021, the company reports the following information:

Budgeted number of desks 3,200 units

Budgeted fixed manufacturing overhead $20,000

Budgeted variable manufacturing overhead $5/hour

Budgeted direct manufacturing labor hours 2 hours/unit

Fixed manufacturing costs incurred $26,000

Direct manufacturing labor hours used 7,200

Variable manufacturing costs incurred $35,600

Actual number of desks manufactured 3,400 units

The desks are usually assembled in Division 101 and then sent to Division 102 where they are inspected and shipped to the customers. On Monday, the production supervisor for Division 101 asked the Division 102 manager to stop production, because one of the assembling machines needed emergency maintenance. The Division 102 manager refused and said, "My job is to maintain production; if I stop, I am penalized and would lose my bonus". In the end, a smaller sample were tested in Division 102. As a result, the return rate on the day's production was much higher than usual. The costs of returns and warranty repairs was $35,000.

Required:

1. Compute the variable overhead spending variance and efficiency variance.

2. Compute the fixed overhead budget variance and fixed overhead volume variance.

3. Based on your answer to requirement 1, should the production manager of Jimbova be responsible for the variable overhead spending and efficiency variance? Explain.

4. Write a short memo to CFO and explain to whom you would assign the responsibility for the $35,000 of returns and warranty costs and why.

Reference no: EM132985128

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