Acme Company\'s production budget for August is 17.600 units and includes the fo

Question

Acme Company's production budget for August is 17.600 units and includes the following component unit costs: direct materials, $7.7: direct labor. $10.1: variable overhead. $6.2. Budgeted fixed overhead is $33,000. Actual production in August was 18.810 units, actual unit component costs incurred during August include direct materials. $8.50: direct labor. $9.10: variable overhead. $6.90. Actual fixed overhead was $34,600. the standard fixed overhead application rate per unit consists of $2.0 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.)

Explanation / Answer

Fixed overhead budget variance = Actual fixed overhead - Budgeted fixed overhead

= 34600 - 33000

= 1600Favourable

Fixed overhead volume variance = (actual activity - normal activity ) * Fixed overhead application rate

Fixed overhead application rate = 33000 / 17600 units = 1.88

Applied fixed overheads = 18810 * 1.88 = 35363

Fixed overhead volume variance = 35363 - 33000 = 2363 favourable.

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