VARIABLE MANUFACTURING OVERHEAD, VARIANCE ANALYSIS Esquire Clothing is a manufac
ID: 2446427 • Letter: V
Question
VARIABLE MANUFACTURING OVERHEAD, VARIANCE ANALYSIS
Esquire 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 4 labor-hours. Budgeted variable manufacturing overhead cost per labor- hour is $12. The budgeted number of suits to be manufactured in June 2014 is 1,040. Actual variable manufacturing costs in June 2014 were $52,164 for 1,080 suits started and completed. There were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,536.
REQUUIREMENTS:
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?
Explanation / Answer
1a.
Calculation of Spending variance for variable manufacturing overhead:
Actual variable manufacturing costs in June 2014
$ 52,164
Actual direct manufacturing labor-hours for June (AH)
4536
Actual variable manufacturing costs per hour = (52164/4536) (AR)
$ 11.50
Budgeted variable manufacturing overhead cost per labor- hour (SR)
$ 12
Spending variance for variable manufacturing overhead = (AR-SR)*AH
$ (2,268)
1b.
Calculation of efficiency variance for variable manufacturing overhead:
Actual direct manufacturing labor-hours for June (AH)
4536
Actual Units started and completed during june
1080
budgeted direct manufacturing labor-hours per unit
4
Total Standard direct manufacturing labor-hours Allowed= 1080*4 (SH)
4320
Budgeted variable manufacturing overhead cost per labor- hour (SR)
$ 12
Efficiency variance for variable manufacturing overhead = (AH-SH)*SR
$ 2,592
1c.
Total Flexible budget variance = 2592-2268
$ 324
2
Comments:
Spending variance is negative it means it is Favorable. Hence saving 2268 Variable overhead as compared with budgeted data.
Efficiency variance is positive it means it is Unfavorable. Hence additional $2592 Variable overhead Cost as compared with budgeted data is incurred.
Total Flexible variance is positive it means it is Unfavorable. Hence additional $324 Variable overhead Cost as compared with budgeted data is incurred.
1a.
Calculation of Spending variance for variable manufacturing overhead:
Actual variable manufacturing costs in June 2014
$ 52,164
Actual direct manufacturing labor-hours for June (AH)
4536
Actual variable manufacturing costs per hour = (52164/4536) (AR)
$ 11.50
Budgeted variable manufacturing overhead cost per labor- hour (SR)
$ 12
Spending variance for variable manufacturing overhead = (AR-SR)*AH
$ (2,268)
1b.
Calculation of efficiency variance for variable manufacturing overhead:
Actual direct manufacturing labor-hours for June (AH)
4536
Actual Units started and completed during june
1080
budgeted direct manufacturing labor-hours per unit
4
Total Standard direct manufacturing labor-hours Allowed= 1080*4 (SH)
4320
Budgeted variable manufacturing overhead cost per labor- hour (SR)
$ 12
Efficiency variance for variable manufacturing overhead = (AH-SH)*SR
$ 2,592
1c.
Total Flexible budget variance = 2592-2268
$ 324
2
Comments:
Spending variance is negative it means it is Favorable. Hence saving 2268 Variable overhead as compared with budgeted data.
Efficiency variance is positive it means it is Unfavorable. Hence additional $2592 Variable overhead Cost as compared with budgeted data is incurred.
Total Flexible variance is positive it means it is Unfavorable. Hence additional $324 Variable overhead Cost as compared with budgeted data is incurred.
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