Acme Company’s production budget for August is 17,700 units and includes the fol

Question

Acme Company’s production budget for August is 17,700 units and includes the following component unit costs: direct materials, $6.0; direct labor, $10.2; variable overhead, $6.2. Budgeted fixed overhead is $34,000. Actual production in August was 18,630 units. Actual unit component costs incurred during August include direct materials, $8.40; direct labor, $9.60; variable overhead, $7.00. Actual fixed overhead was $35,700. The standard fixed overhead application rate per unit consists of $2 per machine hour and each unit is allowed a standard of 1 hour of machine time.

Required:

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, and "None" for no effect (i.e., zero variance).)

Explanation / Answer

Budgeted Fixed overheads    $ 34,000 Actual fixed overheads    $ 35,700 Std fixed overhead rate per MH   $ 2 per MH Std MH allowed for actual output 1 MH per unit Actual Output 18,630 units Std Fixed Overhead applied for actual output (18630*1*2) = $ 37,260 Fixed overheads budget variance= Budgeted Overheads - Actual fixed overheads incurred                                         ( 34,000 -35,700 ) = $ 1,700 unfav Fixed overhead volume variance= Std fixed overhead applied for actual ouput - Budgeted Fixed overheads                                       ( 37,260 - 34000) = $ 3,260 fav

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