Regal Clothing is a manufacturer of designer suits. For June 2017, each suit is budgeted to take 3 labor-hours. The budgeted n
umber of suits to be manufactured in June 2017 is 1 comma 040. Regal Clothing allocates fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit. Data pertaining to fixed manufacturing overhead costs for June 2017 are budgeted, $ 43680, and actual, $ 63920. In June 2017 there were 1 comma 100 suits started and completed. There were no beginning or ending inventories of suits. Requirements 1. Compute the spending variance for fixed manufacturing overhead. Comment on the results. 2. Compute the production-volume variance for June 2013. What inferences can Grand Clothing draw from this variance? Requirement 1. Compute the spending variance for fixed manufacturing overhead. Comment on the results. Begin by computing the following amounts for the fixed manufacturing overhead. Flexible Budget: Same Budgeted Same Budgeted Lump Sum Lump Sum Actual Costs Regardless of Regardless of Allocated Incurred Output Level Output Level Overhead
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<u>Given:</u>
Annual demand = 410 units
Ordering cost = $41
Holding cost = $5 unit per year
<u>To find:</u>
Number of units to be ordered each time an order is placed
<u>Solution:</u>
On calculating the number of units,
Therefore, to minimize the total cost, approximately 77 units should be ordered each time an order is placed.