MGT404 - Managerial Accounting GDB No. 1 Solution and Discussion Spring 2017 Due Date: May 24, 2017
Wayfair Sweets supplies fancy desserts to a variety of caterers, upscale food stores and restaurants in Lahore. Wayfair uses flexible budgeting to plan for and control the overhead costs. A flexible budget allows for a variety of levels of activity. As activity increases, the costs in the flexible budget rise as well. This tool enables management to compare the actual overhead costs incurred with the budgeted overheads that should have been incurred, given the actual level of production activity. It is estimated that Wayfair Company’s major variable-overhead cost is electricity which causes an unfavorable variable-overhead spending variance.
Point of discussion:
You are required to interpret the variable overhead spending variance. Also explain whether an unfavorable-overhead spending variance implies that the company paid more than the expected rate per kilowatt-hour.
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