Project #31443 - 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.

As an HR Manager, human resource planning analyzes the data to make decisions on when to add additional employees in contrast to adding hours to current employees and this is impacted by changes both the fixed and variable costs. Hence HR planners are responsible for carefully exploring headcount and costs per employee and headcount relative to resources and overhead. For this reason, variance analysis is a valuable tool for human resource planning and forecasting.

Month DLH Factory Overhead
March 300 $2,400
April 400 $3,000
May 600 $3,600
June 790 $4,500
July 500 $3,200
August 800 $4,900


What is the flexible budget formula for factory overhead?

As a HR manager, how might you make use of this information in the decisions being made about employee headcount—including hiring and staffing choices.

Part 2:

Honey Bear Confections is a small company dedicated to making bear-shaped sweets with honey as a sugar substitute. You have just been promoted to a position as manager of the production department at Honey Bear Confections when your supervisor shows you the following report. She asks you to prepare an analysis to fix the problem she perceived with employee productivity and efficiency. After reviewing the following information and making the necessary calculations, what would you recommend?

HoneyBear Confections
Manufacturing Overhead Static Budget Report
For the Month Ended June 20XX

 BudgetActualVariance (U of F)
Production in bags of candy 10,000 12,000 2,000F
Indirect labor $26,000 $31,200 $5,200U
Supplies $25,000 $29,500 $4,500U
Utilities $19,000 $22,500 $3,500U
  $70,000 $83,200 $13,200U

In preparing the report, consider the learning objectives for this unit.

Part 3:

In a 2-paragraph essay respond to the following:

Provide examples of how HR managers might make use of variance analysis. How might line managers explore variance analysis in viewing HR budgets and both direct and indirect labor expense?



Chapter 7 & 8: "Budgeting Basics and Beyond" by Jae K. Shim, Joel G. Siegel, Allison I. Shim

Subject Business
Due By (Pacific Time) 06/02/2014 12:00 pm
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