Question

Grand Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three variable costs​ (direct material​costs, direct manufacturing labor​ costs, and manufacturing overhead​ costs) and one​ fixed-cost category​ (manufacturing overhead​ costs). Variable manufacturing overhead cost is allocated to each suit on the basis of budgeted direct manufacturing​labor-hours per suit. For June 2014​, each suit is budgeted to take 55 labor-hours. Budgeted variable manufacturing overhead cost per​labor-hour is $10.The budgeted number of suits to be manufactured in June 2014 is 1,100. Actual variable manufacturing costs in June 2014 were $43,130 for 1,160 suits started and completed. There was no beginning or ending inventories of suits. Actual direct manufacturing​ labor-hours for June were 4,540.Requirements1. Compute the​ flexible-budget variance, the spending​ variance, and the efficiency variance for variable manufacturing overhead.2. Comment on the results.Requirement 1. Compute the​ flexible-budget variance, the spending​ variance, and the efficiency variance for variable manufacturing overhead.Begin by computing the following amounts for the variable manufacturing overhead.Actual Input Qty.Actual CostsxAllocatedIncurredBudgeted RateFlexible BudgetOverhead

Answer 1

Flexible budget variance = $590,330U

Spending variance = $2270F

Efficiency variance = $592,600F

2. THE spending variance was favorable due to the fact that the actual rate of $9.5 is lower than the Budgeted rate of $10.

However, the the efficiency is favorable because the actual labor hour averaged (4540/1160) = 3.91 labor hours significantly lesser than the Budgeted 55 labor hour for each suit.

Step-by-step explanation:

Actual input quantity = 4540

Actual rate = ($43130 ÷ 4540) = $9.50

Budgeted rate = $10

Actual cost incurred = (Actual input quantity × Actual rate)

Actual cost incurred = 4540 × $9.50 = $43,130

Allocated incurred Budgeted rate = (Actual input quantity × Budgeted rate)

4540 × $10 = $45400

Flexible budget overhead= (Budgeted input quantity allowed for actual output × Budgeted rate)

(55 × 1160 × $10) = $638,000

Allocated budget= (Budgeted input quantity allowed for actual output × Budgeted rate)

(55 × 1160 × $10) = $638,000

A.) Spending Variance

Actual cost incurred - Cost assuming Budgeted rate

$43,130 - $45,400 = $2,270F

B.) Efficiency Variance =

Allocated budget budget - allocated incurred budgeted rate

$638,000 - $45,400 = $592,600F

C.) Flexible budget variance

Spending variance - Efficiency variance

$2270 - $592,600 = $590,330U

2. THE spending variance was favorable due to the fact that the actual rate of $9.5 is lower than the Budgeted rate of $10.

However, the the efficiency is favorable because the actual labor hour averaged (4540/1160) = 3.91 labor hours significantly lesser than the Budgeted 55 labor hour for each suit.