Essay Questions
1. Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.
2. What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold?
3. Explain why sales-volume variance could be helpful to managers.
4. Variable manufacturing overhead, variance analysis.
Esquire Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three variable costs (direct material costs, 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 manufacturing labor-hours per suit. For June 2014, each suit is budgeted to take 4 labor-hours. Budgeted variable manufacturing overhead cost per labor-hour is $12. The budgeted number of suits to be manufactured in June 2014 is 1,040.
Actual variable manufacturing costs in June 2014 were $52,164 for 1,080 suits started and completed. There were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,536.
Required:
1. Compute the flexible-budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.
2. Comment on the results.
5. Absorption and variable costing.
(CMA) Osawa, Inc., planned and actually manufactured 200,000 units of its single product in 2014, its first year of operation. Variable manufacturing cost was $20 per unit produced. Variable operating (nonmanufacturing) cost was $10 per unit sold. Planned and actual fixed manufacturing costs were $600,000. Planned and actual fixed operating (nonmanufacturing) costs totaled $400,000. Osawa sold 120,000 units of product at $40 per unit.
Required:
1. Osawa's 2014 operating income using absorption costing is (a) $440,000, (b) $200,000, (c) $600,000, (d) $840,000, or (e) none of these. Show supporting calculations.
2. Osawa's 2014 operating income using variable costing is (a) $800,000, (b) $440,000, (c) $200,000, (d) $600,000, or (e) none of these. Show supporting calculations.