Question

Lihue, Inc., applies fixed overhead at the rate of $4.00 per unit. Budgeted fixed overhead was $1,393,200. This month 342,300 units were produced, and actual overhead was $1,380,000.

Required:

1. What are the fixed overhead price and production volume variances for Lihue?

fixed overhead price variance
fixed overhead production volume variance

b. What was budgeted production for the month?

Answer 1

Solution A

Calculation of Fixed overhead price variance

Actual fixed overhead	$1,380,000
Less: Budgeted fixed overhead	$1,393,200
Fixed overhead price variance	$13,200 (Favourable)

Calculation of Fixed overhead production volume variance

Budgeted fixed overhead	$1,393,200
Less: Applied fixed overhead (Applied fixed overhead rate per unit X Actual units produced) = $4.00 per unit X 342,300 units	$1,369,200
Fixed overhead price variance	$24,000 (unfavourable)

Solution B

Calculation Budgeted Production for the month

Actual production in units	= 342,300 units
Budgeted production exceeds Actual production by	= 6000 units ($24,000 / $4 per unit)
Budgeted production	= 342300 units + 6000 units = 348,300 units