Frank’s Company produced 28,400 dog leashes during February. The following fixed

Question

Frank’s Company produced 28,400 dog leashes during February. The following fixed overhead data pertain to February: (Don’t forget to designate if the variance is favorable or unfavorable)

Actual       Static Budget
Production                                               28,400 units          35,000 units
Machine-hours                                         7,100 hours           7,000 hours
Fixed overhead costs for February              $129,000               $124,000

a) What is the production volume variance?
b) What is the fixed overhead spending variance?

Explanation / Answer

a) production volume variance = [Actual hours - budegted hours] * budgeted overhead rate

= [7100 - 7000] * $17.71

= 100 * $17.71

=$1771 favorable

Note:- Budgeted overhead rate is on basis of machine hours = Budgeted Fixed overhead costs / Budgeted machine hours

= $124,000 / 7000 hours

= $17.71 per hour

b) fixed overhead spending variance = Actual Fixed overhead costs - Budgeted Fixed overhead costs

   = $129,000  - $124,000

= $5000 unfavorable

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