sol08 - CHAPTER 8 FLEXIBLE BUDGETS, OVERHEAD COST...

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Unformatted text preview: CHAPTER 8 FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND MANAGEMENT CONTROL 8-16 (20 min.) Variable manufacturing overhead, variance analysis. 1. Variable Manufacturing Overhead Variance Analysis for Esquire Clothing for June 2012 Actual Costs Incurred Actual Input Quantity Actual Rate (1) Actual Input Quantity Budgeted Rate (2) Flexible Budget: Budgeted Input Quantity Allowed for Actual Output Budgeted Rate (3) Allocated: Budgeted Input Quantity Allowed for Actual Output Budgeted Rate (4) (4,536 $11.50) $52,164 (4,536 $12) $54,432 (4 1,080 $12) $51,840 (4 1,080 $12) $51,840 2. Esquire had a favorable spending variance of $2,268 because the actual variable overhead rate was $11.50 per direct manufacturing labor-hour versus $12 budgeted. It had an unfavorable efficiency variance of $2,592 U because each suit averaged 4.2 labor-hours (4,536 hours 1,080 suits) versus 4.0 budgeted labor-hours. 8-1 $2,268 F Spending variance $2,592 U Efficiency variance Never a variance $324 U Flexible-budget variance Never a variance 8-17 (20 min.) Fixed-manufacturing overhead, variance analysis (continuation of 8-16). 1 & 2. Budgeted fixed overhead rate per unit of allocation base = 4 040 , 1 400 , 62 $ = 160 , 4 400 , 62 $ = $15 per hour Fixed Manufacturing Overhead Variance Analysis for Esquire Clothing for June 2012 Actual Costs Incurred (1) Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (2) Flexible Budget: Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (3) Allocated: Budgeted Input Quantity Allowed for Actual Output Budgeted Rate (4) $63,916 $62,400 $62,400 (4 1,080 $15) $64,800 $1,516 U $2,400 F Spending variance Never a variance Production-volume variance $1,516 U $2,400 F Flexible-budget variance Production-volume variance The fixed manufacturing overhead spending variance and the fixed manufacturing flexible budget variance are the same$1,516 U. Esquire spent $1,516 above the $62,400 budgeted amount for June 2012. The production-volume variance is $2,400 F. This arises because Esquire utilized its capacity more intensively than budgeted (the actual production of 1,080 suits exceeds the budgeted 1,040 suits). This results in overallocated fixed manufacturing overhead of $2,400 (4 40 $15). Esquire would want to understand the reasons for a favorable production-volume variance. Is the market growing? Is Esquire gaining market share? Will Esquire need to add capacity?...
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sol08 - CHAPTER 8 FLEXIBLE BUDGETS, OVERHEAD COST...

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