Chapter 8 Flexible Budgets, Overhead Cost Variances, and Management Control

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 2009

| | |Flexible Budget: |Allocated: |
|Actual Costs Incurred | |Budgeted Input Qty. |Budgeted Input Qty. |
|Actual Input Qty. | |Allowed for |Allowed for |
|× Actual Rate |Actual Input Qty. |Actual Output |Actual Output |
|(1) |× Budgeted Rate |× Budgeted Rate |× Budgeted Rate |
| |(2) |(3) |(4) |
|(4,536 × $11.50) |(4,536 × $12) |(4 × 1,080 × $12) |(4 × 1,080 × $12) |
|$52,164 |$54,432 |$51,840 |$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.

8-17 (20 min.) Fixed-manufacturing overhead, variance analysis (continuation of 8-16).

1 & 2. [pic] = [pic] = [pic] = $15 per hour

Fixed Manufacturing Overhead Variance Analysis for