Reference no: EM132642457

Question - You have been assigned for reviewing the actual and budgeted figures of the variable manufacturing overhead of straight umbrellas at Ombrelloni Felici (OF). The management at OF argues there are no evident issues with the variable manufacturing overhead budget as the static-budget variance is often favourable, which proves the budgeting process works quite well. The management at OF also argues the employees at the production line of straight umbrellas are always highly efficient because of the consistently favourable efficiency variances. Your analysis is for a specific month of the year, comparing the budgeted and actual figures. The variable manufacturing overhead cost is allocated to each straight umbrella based on budgeted direct manufacturing labour-hours per straight umbrella. For the specific month of the year, each straight umbrella is budgeted to take 5 labour-hours. Budgeted variable manufacturing overhead cost per labour-hour is $20. The budgeted number of straight umbrellas to be manufactured in this given month is 100. Actual variable manufacturing overhead costs in the given month were $12,000 for 95 straight umbrellas started and completed. There was no opening or closing stock of straight umbrellas. Actual direct manufacturing labour-hours for this given month were 490.

Required -

1: Calculate the static-budget variance, the flexible-budget variance, the sales-volume variance and the spending and efficiency variances for the given month for the variable manufacturing overhead.

2: Explain whether the management at OF is correct or not regarding having a good budgeting process due to often having a favourable static-budget variance and a consistently favourable efficiency variance. Use your calculations for supporting your argument.