EVE, Inc., which uses a standard costing system, has the following information f

Question

EVE, Inc., which uses a standard costing system, has the following information for the current year. The budgeted fixed costs are $720,000. The budgeted activity level of machine-hours, the allocation base, is 240,000. The fim budgets at a level of 480,000 units of product HJS. During the year, the firm actualy produced 504,000 units of HT. EVE used 245,000 machine-hours during the period and incurred costs totaling $715,000. What is the fixed overhead flexible-budget variance for the current year? $36,000 Favorable $36,000 Unfavorable $5,000 Favorable $5,000 Unfavorable

Explanation / Answer

In a flexible budget, there are changes due to increase or decrease in sales / production. But because Fixed Overhead costs do not change within a relevant range, there is no adjustment of fixed costs in flexible budget.

Hence Variance = Actual costs - Static budget costs = 715000 - 720000 = $5000 Favourable because cost incurred is less than budget.

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