Question

Citi Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours. During February, the company used a denominator activity of 60,000 machine-hours in computing its predetermined overhead rate. However, 75,000 standard machine-hours were allowed for the month's actual production. If the fixed manufacturing overhead volume variance for February was $6,800 unfavorable, then the total budgeted fixed manufacturing overhead cost for the month was (closest to )

Select one:

a. $27,200

b. $81,600

c. $37,612

d. $30,000

Answer 1

Let the total manufacturing over head be X.

let the per unit cost be Y. When 60000 units of machine hours were taken.

Now clearly X/60000 = Y.............................(eq.1)

If the new Machine hours of 75000 was used, the total per unit will change and reflect as

X/75000 = Y- 6800..................................(eq. 2)

Substituting Eq 1 and Eq 2

X/75000= X/60000 - 6800

6800 = X/60000 -X/75000

6800 = (75000 X - 60000X)/75000

6800*5 = X

X=34000

Since X=34000 and threre fore actual budget was 34000-6800 = 27200 as variance of 6800 was unfavourable