Acme Company’s production budget for August is 19,400 units and includes the fol

Question

Acme Company’s production budget for August is 19,400 units and includes the following component unit costs: direct materials, $10.0; direct labor, $12.5; variable overhead, $6.0. Budgeted fixed overhead is $51,000. Actual production in August was 20,928 units, actual unit component costs incurred during August include direct materials, $10.50; direct labor, $12.00; variable overhead, $6.50. Actual fixed overhead was $54,400, the standard fixed overhead application rate per unit consists of $2.5 per machine hour and each unit is allowed a standard of 1 hour of machine time.

Calculate the fixed overhead budget variance and the fixed overhead volume variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Calculate the fixed overhead budget variance and the fixed overhead volume variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Explanation / Answer

Calculate the fixed overhead budget variance and the fixed overhead volume variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

1) Fixed manufacturing overhead budget Variance = Actual Fixed Overhead - Budgeted Fixed Overhead

Fixed manufacturing overhead budget Variance = (54400 - 51000)

Fixed manufacturing overhead budget Variance = $ 3400 Unfavorable

2) Fixed manufacturing overhead volume variances = ( Budgeted Fixed Overhead - Standard Hour Allowed * Standard Rate)

Fixed manufacturing overhead volume variances = (51000 - 1*20928*2.5)

Fixed manufacturing overhead volume variances = $ 1320 Favorable

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