Question

Esquire Clothing is a manufacturer of designer suits. cost of each suit is the sum of three variable costs (direct materials costs, direct manufacturing labour costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead costs). vmoh cost is allocated to each suit based on budgeted direct manufacturing labour-hours (dmlh) per suit. for june, each suit is budgeted to take 4 labour-hours. budgeted vmoh costs per labour-hour are $12.00. the budgeted number of suits to be manufactured in june is 1,040.306actual vmoh costs in june were $53,298 for 1,080 suits started and completed. there was no beginning or ending inventory of suits. actual dmlh for june were 4,536.

REQUIREMENTS:
1. Compute the flexible- budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.
2. Comment on the results.
FIXED MANUFACTURING OVERHEAD, VARIANCE ANALYSIS Esquire Clothing allocates fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit. Data pertaining to fixed manufacturing overhead costs for June 2014 are budgeted, $62,400, and actual, $63,916.
REQUIREMENTS:
1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.
2. Compute the production-volume variance for June 2014. What inferences can Esquire Clothing draw from this variance?

Answer 1

Main Answer:

1. Variable Manufacturing Overhead Variances:

- Flexible-budget variance: $2,544 U

- Spending variance: $2,802 U

- Efficiency variance: $258 F

2. Fixed Manufacturing Overhead Variances:

- Spending variance: $1,516 U

- Production-volume variance: $1,516 U

Explanation:

Esquire Clothing experienced a favorable flexible-budget variance of $2,544 for variable manufacturing overhead (VMOH), primarily due to the actual direct manufacturing labor-hours (DMLH) being 4,536, which is 496 hours less than the budgeted 5,032 hours. This resulted in an efficiency variance of $258 F, indicating that the company used fewer hours than expected to produce the budgeted number of suits. However, the spending variance for VMOH was unfavorable at $2,802 due to the actual VMOH cost per labor-hour being higher than the budgeted cost.

For fixed manufacturing overhead, Esquire Clothing incurred a spending variance of $1,516 U. The actual fixed manufacturing overhead cost of $63,916 exceeded the budgeted amount of $62,400. The production-volume variance, also $1,516 U, suggests that the actual number of suits produced (1,080) exceeded the budgeted quantity (1,040.306). This variance is indicative of higher fixed overhead costs incurred as a result of increased production.

In summary, while Esquire Clothing achieved efficiency in variable manufacturing overhead, the higher cost per labor-hour led to an overall unfavorable variance. The fixed manufacturing overhead spending variance was unfavorable, driven by actual costs exceeding the budget. The production-volume variance indicates increased production, potentially necessitating adjustments in future budgeting to align with the actual volume.