VARIABLE MANUFACTURING OVERHEAD, VARIANCE ANALYSIS The cost of each suit is the

Question

VARIABLE MANUFACTURING OVERHEAD, VARIANCE ANALYSIS

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 2014, 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 2014 is 1,040.

Actual variable manufacturing costs in June 2014 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.

REQUUIREMENTS:

1. Compute the flexible- budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.

2. Comment on the results.

Explanation / Answer

Answer: Spending variance=(AR-BR)*Actual quantity

=((52164/1080)-($12*4))*1080

=$324 U

Efficiency variance= (AH-BH)*BR

=[(4536-(1040*4)]*$12

=$4512 U

Flexible budget variance=Spending variance+Efficiency variance

=324+4512=$4836 U

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