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Overhead variances, ethics. Hartmann Company uses standard costing. The company has two manufacturing plants, one in Georgia and the other in Alabama. For the Georgia plant, Hartmann has budgeted annual output of 2,000,000 units. Standard labor hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.30 per direct labor hour. Fixed overhead for the Georgia plant is budgeted at 2,400,000 for the year.

For the alabama plant, Hartmann has budgeted annual output of 2,100,000 units with standard labor hours also 0.50 per unit. However the variable overhead rate for the Alabame plant is $3.10 per hour and the budgeted fixed overhead for the year is only 2,205,000.

Firm management has always used variance analysis as a performance measure for the two plants and has compared the results of the two plants.

Tom Saban has just been hired as a new controller for Hartmann. Tom is good friends with the Alabama plant manager and wants him to get a favorable review. Tom suggests allocating the firm's budgeted common fixed costs of 3,150,000 to the two plants, but on the basis of one third to the alabama plant and two thirds to the georgia plant. His explanation for this allocation base is that georgia is a more expensive state than alabama.

At the end of the year the georgia plant reported the following actual results, output of 1,950,000 using 1020000 labor hours in total at a cost of 3,264,000 in variable overhead and 2,440,000 in fixed overhead.

actual results for the alabama plant are an output of 2,175,000 units using 1,225,000 labor hours with a variable cost of 3,920,000 and fixed overthead cost of 2,300,000. the actual common fixed costs for the year were 3,075,000.

1) Compute the budgeted fixed cost per labour hour for the fixed overhead separatey for each plant.

a. exclude allocated common fixed costs

b. include allocated common fixed costs

2) compute the variable overhead spending variance and the variable overhead efficiency variance separately for each plant.

3) compute fixed overhead spending and volume variances for each plant

a. excluding allocated common fixed costs

b. including allocated common fixed costs

4) did tom sabans attempt to make the alabame plant look better than the Georgia plant by allocation comming fixed costs work? why or why not?

5) should common fixed costs be allocated in general when variances are used as performance measures? why or why not?

6) what do you think of tom sabans behavior overall?

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