Question

Lihue, Inc., applies fixed overhead at the rate of $3.20 per unit. Budgeted fixed overhead was $1,129,920. This month 343,100 units were produced, and actual overhead was $1,110,000.

Required:

a. What are the fixed overhead price and production volume variances for Lihue? (Indicate the effect of each variance by "F" for favorable, or "U" for unfavorable.)

b. What was budgeted production for the month? (Do not round intermediate calculations.)

Answer 1

Answer-a)- Fixed overhead price variance = $19920 F.

Fixed overhead production volume variance= $32000 U.

Explanation- Fixed overhead price variance = Actual fixed Overhead – Budgeted fixed Overhead

= $1110000 - $1129920

= $19920 Favorable

Fixed overhead production volume variance = Budgeted fixed Overhead – Applied fixed overhead

= $1129920 – ($3.20 per unit*343100 units)

= $1129920 - $1097920

= $32000 Unfavorable

b)- The budgeted production for the month was = Budgeted fixed Overhead/ Fixed overhead per unit

= $1129920/$3.20 per unit

= 353100 units