Question

A company's flexible budget for the range of 38,000 units to 48,000 units of production showed variable overhead costs of $2.00 per unit and fixed overhead costs of $64,000. The company incurred total overhead costs of $142,700 while operating at a volume of 40,000 units. The total controllable cost variance is: I know the answer is C 1300 favorable, but not sure how they came up with that.

Multiple Choice

a. $2,700 favorable.

b. $2,700 unfavorable.

c. $1,300 favorable.

d. $1,300 unfavorable.

e. $10,000 favorable.

Answer 1

Answer - " C. $1,300 Favorable."

Total controllable cost variance = Budgeted overhead - Actual overhead incurred

Budgeted Overhead

Variable overhead costs          = 40,000 Units x $2 = $80,000

Fixed overhead costs     = $64,000

Therefore, Total Budgeted overhead costs = $80,000 + 64,000 = $144,000

Actual Overhead cost = $142,700

Therefore, Total controllable cost variance = Budgeted overhead - actual overhead

= $144,000 – 142,700

= $1,300 favorable ( Because the Budgeted overhead costs is greater than the actual overhead costs incurred