Creative Productions manufactured and sold 800 products at $10,000 each during t

Question

Creative Productions manufactured and sold 800 products at $10,000 each during the past year. At the beginning of the year, production had been set at 1,000 products, and direct materials standards had been set at 10 pounds of direct materials at $12 per pound for each product produced. During the year, the company purchased and used 7,900 pounds of direct materials with a cost of $12.02 per pound. At the beginning of last year, Creative Productions set budgeted fixed overhead costs at $46,000 and budgeted production at 1,000 products. During the year, actual fixed overhead costs were $50,000. Calculate the company's fixed overhead budget and volume variances for the year. Assume that fixed overhead is applied based on units of product.

Explanation / Answer

company's fixed overhead budget variance = budgeted fixed overhead cost - actual fixed overhead cost

= 46000- 50000= $4000(unfavorable)

FIxed overhead volume variance = ABSORBED FIXED OVERHEAD - BUDGETED FIXED OVERHEAD

   = (800*46)- 46000

   = 36800- 46000

   = $ 9200

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