85 12.9: Fixed Manufacturing Overhead Variance Analysis

Question: Many organizations also analyze fixed  manufacturing overhead variances. Recall from earlier chapters that manufacturing companies are required to assign fixed manufacturing overhead costs to products for financial reporting purposes (this is called absorption costing ). It is common for companies such as Jerry’s Ice Cream to apply fixed manufacturing overhead costs to products based on direct labor hours, machine hours, or some other activity. Companies using a standard costing system apply fixed overhead based on a standard dollar amount per unit produced (this calculation is shown in the footnote to Figure 12.12). Assume Jerry’s uses direct labor hours to assign fixed overhead costs to products shown in Figure 12.12. How is this information used to perform fixed overhead cost variance analysis?