Acme Company’s production budget for August is 23,000 units and includes the fol

Question

Acme Company’s production budget for August is 23,000 units and includes the following component unit costs: direct materials, $9.0; direct labor, $11.0; variable overhead, $5.8. Budgeted fixed overhead is $49,000. Actual production in August was 24,075 units, actual unit component costs incurred during August include direct materials, $10.00; direct labor, $10.00; variable overhead, $6.80. Actual fixed overhead was $52,200, the standard fixed overhead application rate per unit consists of $2.4 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.)

Acme Company’s production budget for August is 23,000 units and includes the following component unit costs: direct materials, $9.0; direct labor, $11.0; variable overhead, $5.8. Budgeted fixed overhead is $49,000. Actual production in August was 24,075 units, actual unit component costs incurred during August include direct materials, $10.00; direct labor, $10.00; variable overhead, $6.80. Actual fixed overhead was $52,200, the standard fixed overhead application rate per unit consists of $2.4 per machine hour and each unit is allowed a standard of 1 hour of machine time.

Explanation / Answer

Answer:-

Fixed overhead budget variance

Formula:-

Fixed overhead budget variance = (Budgeted unitsx Direct labour)-(Actual units x irect Labours)

Fixed overhead budget variance = (23,000 x 11)-(24,075 x 10)

Fixed overhead budget variance = 12,250(favourable)

Fixed Overhead Volume Variance

Actual Fixed Overhead = $52,200

Budgeted Fixed Overhead= $ 49,000

Fixed Overhead Volume Variance = Actual Fixed Overhead - Budgeted Fixed Overhead

Fixed Overhead Volume Variance = $52,200 - $49,000 = $3,200(favourable)

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