Lancelot Corporation manufactures tennis gear and uses budgeted machine-hours to

Question

Lancelot Corporation manufactures tennis gear and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:

Budgeted output units                                                                                  8,000 units

Budgeted machine-hours                                                                           24,000 hours

Budgeted variable manufacturing overhead costs for 8,000 units              $288,000

Actual output units produced                                                                      8,500 units

Actual machine-hours used                                                                      23,750 hours

Actual variable manufacturing overhead costs                                             $250,000

What is the flexible-budget amount for variable manufacturing overhead?

Explanation / Answer

Budgeted machine hours per unit = 24,000 / 8,000 = 3
Budgeted machine hours allowed for 8,500 units = 8,500 x 3 = 25,500
Budgeted variable overhead rate per machine hour = $288,000 / 24,000 = $12.00
Flexible-budget amount = 25,500 x $12.00 = $306,000
Flexible-budget variance = $250,000 ? $306,000 = $56,000 Favorable

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