Luxury

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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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 Costs			Allocated
Incurred	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 unfavorable (U).

Flexible-budget variance

Spending variance

Efficiency variance

Requirement 2. Comment on the results.

Luxury

had

a favorablea favorable

an unfavorablean unfavorable

spending variance because the actual variable overhead rate per direct manufacturing labor-hour was

less

more

than the budgeted. It had

a favorable

an unfavorable

efficiency variance because each suit averaged

fewer

more

labor-hours than budgeted.

Variable manufacturing overhead cost is allocated to each suit on the basis of budgeted direct manufacturing labor-hours per suit. For June

2017,

each suit is budgeted to take

3

labor-hours. Budgeted variable manufacturing overhead cost per labor-hour is

$14.

The budgeted number of suits to be manufactured in June

2017

is

1,040.

Actual variable manufacturing overhead costs in June

2017

were

$60,480

for

1,100

suits started and completed. There were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were

4,480.