OpulenceOpulence Clothing is a manufacturer of designer suits. For June 2014, ea

Question

OpulenceOpulence Clothing is a manufacturer of designer suits. For June 2014, each suit is budgeted to take 55 labor-hours. The budgeted number of suits to be manufactured in June 2014 is 1,060. Opulence 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, $84,800, and actual, $63,935. In June 2014 there were 1,120 suits started and completed. There were no beginning or ending inventories of suits.

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 Opulence Clothing draw from this variance?

Requirement 1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.

Begin by computing the following amounts for the fixed manufacturing overhead.

Now compute the spending variance. Label the variance as favorable (F) or unfavorable (U)

Spending variance

Comment on the results.

Spending variance

Comment on the results.

eginning of ending inventories of suits quirements 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 Opulence Clothing draw from this variance? Spending variance Comment on the results The fixed manufacturing overhead sponding variance arid the fixed manufacturing flexible budget variance are | Opulence spent | the budgeted amount for June 2014. Requirement 2. Compute the production-volume variance for June 2014. What inferences can Opulence Clothing draw from this variance? Compute the production-volume variance. Label the variance as favorable (F) or unfavorable (U) Production-volume variance What inferences can Opulence Clothing draw from this variance? The production volume variance arises because the actual production of suits is than the budgeted production. This results in I fixed manufacturing overhead Choose from any list or enter any number in the input fields and then continue to the next question. TEXT 63 MacBook Air

Explanation / Answer

1) Fixed overhead Spending Variance = Budgeted Fixed Overhead - Actual Fixed Overhead

= $84,800 - $63,935 = $20,865 (F)

Comment : As the actual fixed overhead is lower than anticipated fixed overhead, spending overhead is Favourable.

2) Production Volume Variance = Absorbed Fixed Overhead - Budgeted Fixed Overhead

= (Actual output*FOAR) - (Budgeted output*FOAR)

= (1,120 suits * 80) - (1,060 * 80)

= $89,600 - $84,800 = $4,800 (F)

[FOAR = Fixed Overhead Absorption rate per unit of suit = Budgeted Overhead/Budgeted output

= $84,800/1,060 suits = $80 per suit]

As the absorbed overhead is more than the anticipated overhead, the variance is Favourable.

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