FIXED MANUFACTURING OVERHEAD, VARIANCE ANALYSIS Esquire Clothing allocates fixed
ID: 2446473 • Letter: F
Question
FIXED MANUFACTURING OVERHEAD, VARIANCE ANALYSIS
Esquire Clothing allocates fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit. Data pertaining to fixed manufacturing overhead costs for June 2014 are budgeted, $62,400, and actual, $63,916.
REQUIREMENTS:
1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.
2. Compute the production-volume variance for June 2014. What inferences can Esquire Clothing draw from this variance?
10) A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The other party agrees to give the taxpayer $2,500 in cash in addition to the new auto. What is the gain or loss realized and recognized by the taxpayer on this transaction and what is his basis in the new auto?
Explanation / Answer
FIXED MANUFACTURING OVERHEAD, VARIANCE ANALYSIS
Esquire Clothing allocates fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit. Data pertaining to fixed manufacturing overhead costs for June 2014 are budgeted, $62,400, and actual, $63,916.
1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.
Spending variance for fixed manufacturing overhead = Actual Fixed Overhead -Budgeted Fixed Overhead
Spending variance for fixed manufacturing overhead = 63916 - 62400
Spending variance for fixed manufacturing overhead = $ 1516 Unfavorable
Note : Spending variance for fixed manufacturing overhead is unfavorable as it is incurred more than its budgeted.
To calculate production-volume variance Standard budgeted direct manufacturing labor-hours per suit is missing
10) A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The other party agrees to give the taxpayer $2,500 in cash in addition to the new auto. What is the gain or loss realized and recognized by the taxpayer on this transaction and what is his basis in the new auto?
If the transaction has commercial substance than:
Gain or loss realized and recognized by the taxpayer on this transaction = Fair Value of old machine - Book Value
Gain or loss realized and recognized by the taxpayer on this transaction = 20000 - (35000-18000)
Gain or loss realized and recognized by the taxpayer on this transaction = $ 3000
Basis in the new auto = $ 17500
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