Hilo Corporation applies fixed overhead at the rate of $3.30 per unit. Budgeted

Question

Hilo Corporation applies fixed overhead at the rate of $3.30 per unit. Budgeted fixed overhead was $415,000. This month 130,000 units were produced, and actual overhead was $400,000.

What are the fixed overhead price and production volume variances for Hilo? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Hilo Corporation applies fixed overhead at the rate of $3.30 per unit. Budgeted fixed overhead was $415,000. This month 130,000 units were produced, and actual overhead was $400,000.

Explanation / Answer

Fixed overhead Rate = $ 3.30 per unit

Budgeted Fixed overhead = $ 415,000

Acutial Overhead = $ 400,000

No of Units Produced = 130,000 units

We need to compute ,

1. Fixed overhead price Variance = Actual Fixed Overhead -Budgeted Fixed overhead

= 400,000-415,000

= $ 15,000(F)

2. Fixed Overhead production volume variances:

=Absorbed Fixed Overheads-Budgeted Fixed Overheads

= (Actual output x Fixed overhead absorption rate per unit)- Budgetd Fixed overhead

= ($ 130,000x $ 3.30) - $ 415,000

=$ 429,000 - $415,000

= $ 14,000 (F)

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