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

• Working

	Hrs	Rate	Amount
Budgeted Fixed Overhead	17500	$                   4.00	$           70,000.00
Standard Fixed Overhead or Fixed Overhead absorbed	18000	$                   4.00	$           72,000.00
Actual Fixed Overhead incurred			$           67,000.00

• Requirement asked, with calculations

Fixed Overhead Production Budget Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$                    70,000.00	-	$            67,000.00	)
	3000
	Variance		$              3,000.00			Favourable-F

Fixed Overhead Production Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Budgeted Fixed Overhead	)
(	$                    72,000.00	-	$            70,000.00	)
	2000
	Variance		$              2,000.00			Favourable-F