Reference no: EM132602816

Longman Industries makes a line of back country camp stoves that conveniently fit into a hiker's backpack. The stoves are made in standard batches of 50. To manufacture a batch of stoves, the production manager must setup the assembly and finishing workstations. Setup costs are batch-level costs because they are associated with batches rather than individual units of product.

Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup hours. The original static budget plan for May was to produce 12,500 stoves. However, there was a decrease in the demand for the stoves as more of the population were staying home. As such the production manager decreased the production in May to 11,550 stoves. The following information also relates to May.

                                                           Static-budget                     Actual

                                                                      Amounts                     Amounts

Batch size (number of stoves per batch)              50                          55

Setup hours per batch                                       2.0                       1.8

Variable overhead cost per setup hour                 $30                       $33

Total fixed setup overhead costs                      $25,500                   $26,160

Question 1: Calculate the rate and efficiency variances for variable setup overhead costs.

Question 2: Calculate the rate and production-volume variances for fixed setup overhead costs.

Question 3: The production manager would like you to explain the variable overhead efficiency variance to him. Your explanation should include more than that it was favourable or unfavourable. It should explain using quantitative and qualitative analysis what the variance means in relation to the actual versus budgeted production.