Redtop Co Uses a Standard Cost System and Flexible Budgets

question 39

Essay

Redtop Co. uses a standard cost system and flexible budgets. The following flexible budget was prepared at the 80% operating level for the year:For purposes of calculating the standard fixed overhead application rate, the company defined the "denominator volume" as the 90% capacity level. As noted above, the standard calls for four DLHs per unit manufactured. During the year, Redtop worked 33,600 DLHs to manufacture 8,500 units. The actual factory overhead cost incurred was $12,000 greater than the flexible-budget amount for the units produced, of which $5,000 was due to fixed factory overhead.
Required:
Calculate (and provide supporting details for) each of the following variances:
1. The standard variable overhead application rate (to two (2) decimal places) per DLH.
2. The variable overhead efficiency variance, to the nearest dollar.
3. The total factory overhead spending variance, to the nearest dollar.
4. The fixed overhead production-volume variance.
5. The variable overhead spending variance.
6. Provide a short description (i.e., interpretation) of each of the variances you calculated in requirements 2 through 5.

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Definitions:

Product Development

The process of creating or improving a product or service to meet market demands or take advantage of new opportunities.

Test Marketing

A strategy that involves launching a product in a limited market to gauge consumer response before a wider release.

Planned Obsolescence

A practice in which companies frequently come out with new models of a product that make existing models obsolete.

Diffusion

The process by which a product is adopted and spreads across various types of adopters.