Redtop Co Uses a Standard Cost System and Flexible Budgets

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