Question

At the beginning of the year, Long, Inc. estimates factory overhead to be $50,000 based on...

  1. At the beginning of the year, Long, Inc. estimates factory overhead to be $50,000 based on 40,000 units. Long believes there is $1 variable overhead per unit produced and $10,000 fixed costs. At the end of the year, 62,000 units were produced at a cost of $80,000.
    • What amount would a flexible budget estimate for total factory overhead at a production level of 62,000 units?
    • What portion of the $30,000 variance is due to activity?
    • What portion of the $30,000 variance is due to spending?

Homework Answers

Answer #1

Answer :

Flexible budget estimate at level of 62000 units

Fixed cost = 10000

Variable costs = 62000 * 1 = 62000

Total factory overhead estimates = 62000 + 10000 = 72000

Total variance = 50000 - 80000 = 30000 Unfavorable

Portion relating to activity variance = (Standard Quantity - Actual Quantity) * Standard Rate

Portion relating to activity variance = (40000 - 62000)*1

Portion relating to activity variance = 22000 Unfavorable

Portion relating to activity variance = (Activity Quantity * Budgeted rates) - Actual cost incurred

Portion related to spending variance = (62000*1) - 70000

Portion related to spending variance = 8000 Unfavorable

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