Question

Innovation Inc.'s production budget for January is 35,000 units and includes the following component unit costs: direct materials, $16; direct labor, $20; variable overhead, $12. Budgeted fixed overhead is $70,000 (35,000 units × 1/2hour × $4unit). Actual production in January was 36,000 units. Actual unit component costs incurred during January include direct materials, $16.50; direct labor, $18.90; variable overhead, $13.64. Actual fixed overhead was $67,000. The standard fixed overhead application rate per unit consists of $4 per machine hour and each unit is allowed a standard of 1/2 hour of machine time.

Calculate the fixed overhead budget variance and the fixed overhead volume variance.

Answer 1

Fixed Overhead Budget Variance:

= Budgeted Fixed Overhead - Actual Fixed Overhead

= $ 70000 - $ 67000

= $ 3000 Favorable

Fixed Overhead Volume Variance :

= Budgeted Fixed Overhead - Applied Fixed Overhead

= $70000 - $ 72000

= $ 2000 favorable

working:

Actual no of units produced. (A)	36000
Peqg Unit Machine Time. (B)	1/2 hour
Total machine hour required. (A* B) = (C)	18000 hour
Machine rate per hour. (D)	$4
Total applied overhead. (C * D) = (E)	$72000