Fixed Overhead Variances Petra Company uses standard costs for cost control and

Question

Fixed Overhead Variances
Petra Company uses standard costs for cost control and internal reporting. Fixed costs are budgeted at $40,000 per month at a normal operating level of 10,000 units of production output. During October, actual fixed costs were $45,000 and actual production output was 12,000 units

a. Determine the fixed overhead budget variance.
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b. Assume that the company applied fixed overhead to production on a per-unit basis. Determine the fixed overhead volume variance.
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Explanation / Answer

a. Fixed overhead budget variance = Actual Fixed Cost - Budgeted Fixed Cost

= $45,000 - $40,000

= $5,000 Unfavoravble

b. If Comapny applied fixed overhead to production on a per unit basis, then

Standard Fixed cost per Unit = Budgeted Cost / Budgeted Unit

= $40,000 / 10,000 units = $4 per unit

Standard Fixed cost = Standard cost per unit x Actual Unit

= $4 X 12,000 = $48,000

Now, Fixed Overhead Volume Variance = Budgeted Fixed Cost -  Standard Fixed cost

= $40,000 - $48,000

= $(8,000) favorable

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