Fixed Overhead Budget and Volume Variance Four-Leaf Clover Company assigns fixed

ID: 2564473 • Letter: F

Question

Fixed Overhead Budget and Volume Variance

Four-Leaf Clover Company assigns fixed overhead costs to inventory for external reporting purposes

by using a predetermined standard overhead rate based on direct labor hours. The standard rate is

based on a normal activity level of 25,000 standard allowed direct labor hours per year. There are five

standard allowed hours for each unit of output. Budgeted fixed overhead costs are $360,000 per year.

During 2017, the company produced 5,200 units of output, and actual fixed costs were $375,000.

Required

a. Determine the standard fixed overhead rate used to assign fixed costs to inventory.

b. Determine the amount of fixed overhead assigned to inventory in 2017.

c. Determine the fixed overhead budget variance

a. Standard fixed overhead rate = Budgeted fixed overhead costs / Standard direct labor hours = $360000 / 25000 = $14.40 per direct labor hour

b. Fixed overhead assigned to inventory in 2017 = 5200 units x 5 direct labor hours x $14.40 = $374400

c. Fixed overhead budget variance = Budgeted fixed overheads – Actual fixed overheads = $360000 - $375000 = $15000 Unfavorable

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