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.
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Question 4 continued
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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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