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
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).
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Variable manufacturing overhead cost is allocated to each suit on the basis of budgeted direct manufacturing labor-hours per suit. For June 2020, each suit is budgeted to take 4 labor-hours. Budgeted variable manufacturing overhead cost per labor-hour is $15. The budgeted number of suits to be manufactured in June 2020 is 1,120.
Actual variable manufacturing overhead costs in June 2020 were $69,750 for 1,160 suits started and completed. There were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,500.
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 Costs incurred |
| Flexible budget | Allocated overhead | |
---|---|---|---|---|
$ | $ | $ | $ |
Now compute the variances: flexible-budget variance, then spending variance, and finally the efficiency variance. Label each variance as favorable (F) or unfavorable (U).
Flexible-budget variance | $ | F |
Spending variance | $ | F |
Efficiency variance | $ | U |
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