Question

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 2017, 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 2017 is 1,040. Actual variable manufacturing costs in June 2017 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.Compute the flexible- budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.

Answer 1

Answer:

(i) $328 Unfavorable

(ii) $2,268 Favorable

(iii) $2,592 Unfavorable

Explanation:

Total budgeted hours for actual output (SH):

= Actual units × Budgeted hours per suite

= 1,080 suits × 4 hours

= 4,320 hours

Actual variable overhead rate (AR) = Actual cost ÷ Actual hours

                                                          = $52,164 ÷ 4,536

                                                          = $11.5 per hour

Variable overhead spending variance:

= (Standard rate - Actual rate) × Actual hours

= ($12 - $11.5) × 4,536

= $2,268 Favorable

Variable overhead efficiency variance:

= (Standard hours - Actual hours) × Standard rate

= (4,320 - 4,536) × $12

= $2,592 Unfavorable

Flexible- budget variance:

= variable overhead spending variance + Variable overhead efficiency variance

= $2,268 Favorable + $2,592 Unfavorable

= $328 Unfavorable

Answer 2

a. The flexible- budget variance is $324 Unfavorable.

b. The  spending variance is $2,268 Favorable.

c. The efficiency variance for variable manufacturing overhead is $2,592 Unfavorable.

Flexible- budget variance

Spending variance:

Total budgeted hours for actual output (SH)= Actual units × Budgeted hours per suite

Total budgeted hours for actual output (SH)= 1,080 suits × 4 hours

Total budgeted hours for actual output (SH)= 4,320 hours

Actual variable overhead rate (AR) = Actual cost ÷ Actual hour

Actual variable overhead rate (AR)= $52,164 ÷ 4,536

Actual variable overhead rate (AR)= $11.5 per hour

Variable overhead spending variance= (Standard rate - Actual rate) × Actual hours

Variable overhead spending variance= ($12 - $11.5) × 4,536

Variable overhead spending variance=$2,268 Favorable

Efficiency variance:

Variable overhead efficiency variance= (Standard hours - Actual hours) × Standard rate

Variable overhead efficiency variance= (4,320 - 4,536) × $12

Variable overhead efficiency variance= $2,592 Unfavorable

Flexible- budget variance:

Flexible- budget variance= variable overhead spending variance + Variable overhead efficiency variance

Flexible- budget variance= $2,268 Favorable + $2,592 Unfavorable

Flexible- budget variance= $324 Unfavorable

Inconclusion the flexible- budget variance is $324 Unfavorable.

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