Computing Factory Overhead Costs and Variance

The process of analyzing overall performance of a company often entails making comparisons between anticipated costs and actual costs for areas such as materials, labor, and factory overhead. To make such comparisons, managers use the principle of variance analysis to determine how well company operations are meeting expectations. Within a Human Resource budget, the costs per hire including funds on recruitment, training, evaluation and total rewards represent a significant portion of an organization’s expenses. These costs vary widely across industries.

In this Application, you will analyze two scenarios using the information presented in your Resources. You will apply your knowledge of variance analysis, flexible budgets, and overhead to draw conclusions about the following scenarios.

You will set up and use an Excel spreadsheet for all your calculations for the problems below, and the spreadsheet you develop should be what you turn in for the Application. Note: The Resources section includes tutorials for those who might need help in designing and using an Excel spreadsheet.

Part 1:

YumTown Frozen Foods is an emerging company in the market of high-end TV dinners. YumTown’s postion takes on popular favorites such as steak and potatoes and macaroni and cheese have gained significant attention on cable food channels. However, as YumTown’s level of activity has risen, the company has struggled to make sense of its manufacturing costs. Representatives have asked you to analyze the company’s factory overhead costs and labor hours. YumTown accumulates the following data concerning a mixed cost by relating total factory overhead costs to direct labor hours.