Question

The overhead application rate for a company is 10$ per unit, made up of $6 per unit fixed overhead and 4$ per unit of variable overhead. Normal capacity is 10000 units. In one month there was a favoeable flexibe budgeted variance of 2500$. Actual overhead for the month was 110.000$ abd actual units produced were 13125. Determine the amount of the budgeted overhead for the actual level of production.

Answer 1

Correct Answer $112500

Explanation and Calculations

Actual Overheads	$ 110,000.00
Add: Favorable Variance	$      2,500.00
Standard for Actual Units	$ 112,500.00

We know that favorable variance occur when Actual cost is lower than budgeted cost.

Taking that into mind if there is Favorable Variance then it means Standard cost must be higher than Actual cost, so if we add Favorable Overhead to Actual overhead we get standard overhead cost calculated above.