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 = Budgeted fixed overhead - Actual fixed overhead

= -$49,000 - $52,200 = $3,200 (U)

Fixed overhead volume variance = Absorbed Fixed overhead - Budgeted fixed overhead

= Actual Units * Fixed overhead absorption rate - Budgeted Fixed overhead

= 24,075 * $2.4 *1 - 49,000 = $8,780 (F)

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