Question

All Clean of Alberta manufactures individual shampoos for hotel/motel clientele. The fixed manufacturing overhead costs for 2019 will total $576,000. The company uses good units finished for fixed overhead allocation and anticipates 300,000 units of production. Good units finished on average 92 percent of total units produced. During January, 20,000 units were produced. Actual fixed overhead cost per good unit averaged $2.82 in January.

Required (20 Points - Show formula and calculation for full points).

A. Determine the fixed overhead rate for 2019.

B. Determine the fixed overhead static-budget variance for January.

C. Determine the fixed overhead production-volume variance for January.

D. Determine the fixed overhead rate variance for January.

Answer 1

FIXED OVERHEAD VARIANCE

Actual Fixed OH Cost	Budgeted Fixed OH Cost (Flexible Budget)	Standard Fixed OH Cost (FOH applied)
Actual Output	Actual Rate	AFOH	Budgeted Output	Standard Rate	BFOH	Actual Output	Standard Rate	SFOH
AO	AR	[AO x AR]	BO	SR	[BO x SR]	AO	SR	[AO x SR]
20,000	$2.82	$56,400	23,000	$2.087	$48,000	20,000	$2.087	$41,740
[Given]	[Given]		[(300,000 x 92%)/12 Months]	[$576,000/(300,000 Units x 92%)]	[$576,000/12 Months]	[Given]	[$576,000/(300,000 Units x 92%)]
20,000		$56,400	23,000		$48,000	20,000		$41,740

a)	Fixed Overhead Rate for 2019	[Budgeted Fixed OH / Budgeted Units]
		[$576,000/(300,000 Units x 92%)]
		$ 2.087 Per Unit
b)	Total Fixed OH Static-Budget Variance	[SFOH - AFOH]
		[$ 41,740 - $ 56,400]
		$ 14,660 [Unfavourable]
c)	Fixed OH Production Volume Variance	[SFOH - BFOH]
		[$ 41,740 - $ 48,000]
		$ 6,260 [Unfavourable]
d)	Fixed OH Rate / Expenditure Variance	[BFOH - AFOH]
		[$ 48,000 - $ 56,400]
		$ 8,400 [Unfavourable]