Redtop Co Uses a Standard Cost System and Flexible Budgets

question 21

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: However, for purposes of calculating the fixed overhead application rate, the company defined the denominator volume as the 90% capacity level. 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 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.
2. The variable overhead efficiency variance.
3. The factory overhead spending variance.
4. The factory overhead production volume variance.
5. The variable overhead spending variance.
6. Provide an interpretation for each of the above variances you calculated

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Definitions:

Coffee Breaks

Scheduled or spontaneous breaks during the workday allowing employees to rest and recharge, often involving social interaction.

Fire Alarm

A device that emits a warning signal, either audio or visual, in the event of fire, prompting evacuation and emergency response.

Cognitive Knowledge

The understanding of concepts, facts, and procedures that is acquired through thought processes, such as reasoning or remembering.

Spanish Language

A Romance language that originated in the Iberian Peninsula of Europe, now widely spoken across the globe, especially in Spain, Latin America, and parts of the United States.