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Radon Corporation manufactured 50,000 grooming kits for horses during August. The budgeted sales price was $18,...

Radon Corporation manufactured 50,000 grooming kits for horses during August. The budgeted sales price was $18, although the actual price was $15. Additionally, the budgeted variable cost per unit was $7/unit; actual variable cost per unit was $9/unit. FOH is allocated based on Machine Hours. The following fixed overhead data pertain to August:

Actual Static Budget

Production 50,000 units 57,000 units

Machine-hours 5,500 hours 6,000 hours

Fixed overhead costs for August $125,000 $145,000

a) What is the fixed overhead production-volume variance?

b) What is the fixed overhead spending variance?

c) What is the Fixed Manufacturing Overhead Variance?

d) What is the Sales Volume Variance for Operating Income? e) What is the Operating Income Volume Variance?

Solutions

Expert Solution

a) Budgeted Fixed Overheads = $145,000

Budgeted Machine Hours = 6,000 hrs

Fixed Overhead Absorbtion Rate = Budgeted Fixed Overheads/Budgeted Machine Hours

= $145,000/6,000 hrs = $24.166667 per hour

Absorbed Fixed Overhead = Actual Hours*Fixed OH absorbtion rate

= 5,500 hrs*$24.166667 = $132,917

Budgeted Fixed Overhead = $145,000

Fixed Overhead Production-Volume Variance = Absorbed Fixed Overhead - Budgeted Fixed Overhead

= $132,917 - $145,000 = ($12,083) Unfavorable

b) Fixed Overhead Spending Variance = Budgeted Fixed Overhead - Actual Fixed Overhead

= $145,000 - $125,000 = $20,000 Favorable

c) Fixed Manufacturing Overhead Variance = Absorbed Fixed Overhead - Actual Fixed Overhead

= $132,917 - $125,000 = $7,917 Favorable

d) Sales Volume Variance for Operating Income

= (Actual Sales units - Budgeted Sales units)*Budgeted Contribution per unit

Budgeted Contribution per unit = Budgeted Sale price - Budgeted Variable cost

= $18 - $7 = $11 per unit

Sales Volume Variance for Operating Income = (50,000 units - 57,000 units)*$11 = ($77,000) Adverse

ekkarill92 answered 1 year ago
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