Question

Grand Clothing is a manufacturer of designer suits. For June 2013, each suit is budgeted to take 4 labor-hours. The budgeted number of suits to be manufactured in June 2013 is 1,020. Grand 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 2013 are budgeted, $61,200, and actual, $63,900 for 1,000 suits started and completed. There were no beginning or ending inventories of suits. Requirements 1. Compute the spending variance for fixed manufacturing overhead. Comment on the results. 2. Compute the production-volume variance for June 2013. What inferences can Grand Clothing draw from this variance? Requirement 1. Compute the spending variance for fixed manufacturing overhead. Comment on the results Begin by computing the following amounts for the fixed manufacturing overhead. Flexible Budget: Same Budgeted Same Budgeted Lump Sum Lump Sum Regardless of Regardless of Actual Costs Allocated Overhead Incurred Output Level Output Level

Answer 1

Answer is given below

d

Flexible Budget Same Budgeted Lump Sum Regardless of Output level $61,200 Same Budgeted Lump Sum Regardless of Output level $61,200 Actual Overhead Allocated Overheads I $63,900 $60,000 1. Spending variance is 2,700 Adverse (Actual Overheads- Budgeted Overheads) Comments Actual overhead spend is higher than Budgeted. Hence the variance is unfavorable Production volume variance is $3,900 Adverse (Actual Overheads- Allocated Overheads) Comments Actual output is lower than budgeted output. Hence allocated overhead is less for actual production but Actual overhead spend is higher. Hence unfavorable variance is higher Working for allocated Fixed Overheads Budgeted Overheads Budgeted Output Actual Output Allocated Overheads for actual output $61,200 1,020 1,000 $60,000