Grand Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three variable costs (direct materialcosts, direct manufacturing labor costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead costs). Variable manufacturing overhead cost is allocated to each suit on the basis of budgeted direct manufacturinglabor-hours per suit. For June 2014, each suit is budgeted to take 55 labor-hours. Budgeted variable manufacturing overhead cost perlabor-hour is $10.The budgeted number of suits to be manufactured in June 2014 is 1,100. Actual variable manufacturing costs in June 2014 were $43,130 for 1,160 suits started and completed. There was no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,540.Requirements1. Compute the flexible-budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.2. Comment on the results. Requirement 1. Compute the flexible-budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead. Begin by computing the following amounts for the variable manufacturing overhead. Actual Input Qty. Actual RateFlexible BudgetOverhead

Flexible budget variance = $590,330U

Spending variance = $2270F

Efficiency variance = $592,600F

2. THE spending variance was favorable due to the fact that the actual rate of $9.5 is lower than the Budgeted rate of $10.

However, the the efficiency is favorable because the actual labor hour averaged (4540/1160) = 3.91 labor hours significantly lesser than the Budgeted 55 labor hour for each suit.

Explanation:

Actual input quantity = 4540

Actual rate = ($43130 ÷ 4540) = $9.50

Budgeted rate = $10

Actual cost incurred = (Actual input quantity × Actual rate)

Actual cost incurred = 4540 × $9.50 = $43,130

Allocated incurred Budgeted rate = (Actual input quantity × Budgeted rate)

4540 × $10 = $45400

Flexible budget overhead= (Budgeted input quantity allowed for actual output × Budgeted rate)

(55 × 1160 × $10) = $638,000

Allocated budget= (Budgeted input quantity allowed for actual output × Budgeted rate)

(55 × 1160 × $10) = $638,000

A.) Spending Variance

Actual cost incurred - Cost assuming Budgeted rate

$43,130 - $45,400 = $2,270F

B.) Efficiency Variance =

Allocated budget budget - allocated incurred budgeted rate

$638,000 - $45,400 = $592,600F

C.) Flexible budget variance

Spending variance - Efficiency variance

$2270 - $592,600 = $590,330U

2. THE spending variance was favorable due to the fact that the actual rate of $9.5 is lower than the Budgeted rate of $10.

However, the the efficiency is favorable because the actual labor hour averaged (4540/1160) = 3.91 labor hours significantly lesser than the Budgeted 55 labor hour for each suit.

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