oh Tailored Clothing is a manufacturer of designer suits. The cost of each suit
ID: 2577896 • Letter: O
Question
oh Tailored Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three vanable costs (direct material costs, direct manufacturing labor costs and manufactuning overhead costs) and one fixed cost category (manufacturing overhead costs) Vanable 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 3 labor-hours Budgeted variable manufacturing overhead cost per labor-hour is $15 The budgeted number of suts to be manufactured in June 2014 is 1.180 Actual variable manufacturing costs in June 2014 were $72 960 for 1,140 suats started and completed There were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,560 Requirements 1. Compute the flexible-budget variance the spending vanance, and the eficiency variance for vaniable manufacturing overhead 2. Comment on the results Resuliremont, Comrcte t dg aande Begin by computing the following amounts for the variable manufacturing overhead Actual Input Qty Actual Costs Allocated incurredd Budgeted Rate Flexible Budget Overhead Now compute the variances flexible-budget variance, then spending variance, and finally the efficiency variance Label each variance as favorable (F) or unfavcrable Spendng variance EFxiency variance Requirement 2. Comment on the resultsExplanation / Answer
Tailored Clothing Requirment 1 A B C Actual Cost Incurred Actual Input quantity*Budgeted rate Flexible budget Allocated overhead 72960 =1140*45 =1520*45 68400 51300 68400 Flexible Budget Variance B-A =51300-72960 -21660 Spending Variance C-A =68400-72960 -4560 unfavourable Efficiency Variance B-C =51300-68400 -17100 unfavourable Tailed had Unfavourable unfavourable spending variance because the actual variable overhead rate per direct manufacturing labour hour was more than budgted. It had unfavourable efficiency variance each suit averaged more labour hour than budgeted. Actual variable overhead rate per labour hour =72960/4560 16 actual labour hour per suit =4560/1140 4 Budgeted Variable Manufacturing Overhead Cost per labor hour is given = 15 Budgeted Variable Manufacturing Overhead Cost per suit is 45 Each suit takes 3 budgted labor hour so =3*$15 Standard output is =actual Labor hours/budgeted labour hour per suit =4560/3 = 1520
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