Question

Lihue, Inc., applies fixed overhead at the rate of $4.20 per unit. Budgeted fixed overhead was $1,457,820. This month 342,100 units were produced, and actual overhead was $1,450,000.

• Required A

What are the fixed overhead price and production volume variances for Lihue? (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Fixed overhead price variance
Fixed overhead production volume variance

• Required B: What was budgeted production for the month?

Budgeted production

units

Answer 1

Answer A:

Fixed Overhead Price Variance

Fixed Overhead Price Variance = Actual Overhead - Budgeted Overhead

Fixed Overhead Price Variance = $1450000 - $1457820 = $7820 (F)

Favourable as the actual overhead costs are less than budgeted costs.

Fixed overhead production volume variance

Fixed overhead production volume variance = Overhead Rate x (Budgeted Production - Actual Production)

Fixed overhead production volume variance = $4.20 x (347100 units - 342100) = $21000 (U)

It is unfavourable because the actual production is less than the budgeted producton.

Answer B:

Budgeted production for the month

Budgeted production for the month = Budgeted Fixed Overhead/Overhead Rate = $1457820/$4.20

Budgeted production for the month = 347100 units