Question

Question 3:

Stafford Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three variable costs (direct material costs, direct manufacturing labour costs, and manufacturing overhead costs), and one fixed-cost category (manufacturing overhead costs).Variable manufacturing overhead cost is allocated to each suit based on budgeted direct manufacturing labour-hours per suit.

For June 2019, each suit is budgeted to take 4.5 labour-hours. Budgeted variable manufacturing overhead cost per labour-hour is $11. The budgeted number of suits to be manufactured in June 2019 is 1 400.

Actual variable manufacturing overhead costs in June 2019 for 1 280 suits started, and completed, were $51,750. There was no beginning or ending inventories of suits. Actual direct manufacturing labour-hours for June were 4 500.

Required

1. Calculate the flexible-budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.   
2. Comment on the results.

Answer 1

1:-

Standard labour Hours For Actual Production (SH) = 1280*4.5 = 5760

Actual labour Hours (AH) = 4500

Stadard rate(SR) =$11.00

Actual Rate(AR) =$51750/4500 =$11.50

Spending Variances = AH × (SR - AR)

=4500 × ($11.00 - $11.50)

=$2250(Unfavourable)

Efficiency variances = SR × (SH - AH)

=$11.00×(5760-4500)

=$13860 (Favourable)

flexible-budget variance = $13860-$2250 = $11610 (Favourable)

2:- Stafford clothing had a unfavorable spending variance of $2250 because the actual variable overhead rate was $11.50 per direct manufacturing labor-hour versus $11.00 budgeted. It had an favorable efficiency variance of $13860 because each suit averaged 3.515635 labor-hours (4,500hours ÷ 1280 suits) versus 4.50. budgeted labor-hours.