Kool Clothing Variance Case Study

2. Kool Clothing is a manufacturer of designer dresses.  The cost of each dress is the sum of three variable costs (direct materials cost, direct manufacturing labor costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead costs).  Variable manufacturing overhead costs is allocated to each dress on the basis of budgeted direct manufacturing labor-hours per dress.  For April 2012 each dress is budgeted to take five labor-hours.  Budgeted variable manufacturing cost per labor hour is $15.  The budgeted number of dresses to be manufactured in April 2012 is 1,250.

Actual variable manufacturing costs in June 2012 were $65,688 for 1,360 dresses started and completed.  There was no beginning or ending inventories of dresses.  Actual direct manufacturing labor-hours for April were 5,712.

a. Compute the flexible-budget variance

b. Compute the spending variance

c. Compute the efficiency variance for variable manufacturing overhead

d. Comment on the results for the requirements above and provide possible explanation for them.

a) FLEXIBLE BUDGET VARIANCE

budget April 2012 actual April 2012 Variance

Manufacturing hours 6250 5712 538

cost per labor hour ($) 15 9.66 5.34

Actual mfg cost 93750 55177.92 38572.08

b) Spending variance:

...