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

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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).

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=$15 per hour

Fixed Manufacturing Overhead Variance Analysis for Esquire Clothing for June 2009

| | |Flexible Budget: | | | |Same Budgeted |Same Budgeted |Allocated: | | |Lump Sum |Lump Sum |Budgeted Input Qty. | | |(as in Static Budget) |(as in Static Budget) |Allowed for Actual Output | |Actual Costs Incurred |Regardless of |Regardless of |× Budgeted Rate | |(1) |Output Level |Output Level |(4) | | |(2) |(3) | | | | | |(4 × 1,080 × $15) | |$63,916 |$62,400 |$62,400 |$64,800 | | | | | |

$1,516 U$2,400 F
Spending variance Never a variance Production-volume variance

$1,516 U$2,400 F
Flexible-budget varianceProduction-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 2009.

The production-volume variance is $2,400 F. This arises because Esquire utilized its...
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