Question

Marie Designers is a maker of designer dresses. The cost of each dress is the sum...

Marie Designers is a maker of designer dresses. The cost of each dress is the sum of three variable costs (direct material costs, direct labour costs, and overhead costs) and one fixed-cost category (overhead costs). Variable overhead cost is allocated to each dress on the basis of budgeted direct labour-hours per dress. For June 2020, each dress is budgeted to take 8 labour hours. Budgeted variable overhead cost per labour-hour is $18. The budgeted number of dresses to be made in June 2020 is 2,080.

Actual variable costs in June 2020 were $104,328 for 2,160 dresses started and completed. There were no beginning or ending inventories of dresses. Actual direct labour-hours for June were 9,072.

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

                        

Question 4 continued over next page

Question 4 continued

  1. Comment on the spending and efficiency variances calculated.

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Homework Answers

Answer #1
Computation of Variances
Budgeted Labour Hours for each Dress 8
Budgeted Variable overhead cost per Labour hours 18
Budgeted quantity 2,080
Actual Variable cost 1,04,328
Actual quantity 2,160
Actual Labour Hours 9,072
Standard Hours 17,280
Standard Cost 3,11,040
Flexible Budget Variance = Standard Cost- Actual Cost
=3,11,040 - 1,04,328
2,06,712 Favorable
Spending Variance = (Budgted rate - Actual rate)* Actual Hours
= BR X AH - AR X AH
=18 X 9,072 - 1,04,328
58,968 Favorable
Efficiency Variance for Manufacturing overhead = (Standard hours - Actual hours)X Budgeted Rate
=(17,280 -9072) X 18
1,47,744 Favorable
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