Question

Lihue, Inc., applies fixed overhead at the rate of $3.30 per unit. Budgeted fixed overhead was $1,166,550. This month 343,000 units were produced, and actual overhead was $1,150,000. Required: a. What are the fixed overhead price and production volume variances for Lihue? (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) b. What was budgeted production for the month? (Do not round intermediate calculations.)

Answer 1

a. Fixed Overhead Price Variance = $18,100 Unfavorable

Fixed Production Volume Variance = $318,150 Unfavorable

b. Budgeted Production for the month = 353,500 units

Step-by-step explanation:

Provided information,

Budgeted Overheads = $1,166,550

Budgeted rate per unit = $3.30

Budgeted units = $1,166,550/$3.30 = 353,500 units

Actual units produced = 343,000

Actual overheads = $1,150,000

Actual rate = $1,150,000/343,000 = $3.353

Fixed Overhead price variance = (Standard price - Actual Price)
`*` Actual Units

= Standard price
`*` Actual Units - Actual Price
`*` Actual Units

= $3.30
`*` 343,000 - $1,150,000

= $1,131,900 - $1,150,000 = - $18,100

Since actual cost is more than budgeted cost for actual units, overhead variance is unfavorable.

Fixed Overhead Production Volume Variance = (Standard Quantity - Actual Quantity)
`*` Standard Rate

= (353,500 - 343,000)
`*` $3.30

= 10,500
`*` $3.30 = $318,150

Though this is positive value but it is unfavorable variance as the actual production is less than budgeted production.

Correct answer to above:

a. Fixed Overhead Price Variance = $18,100 Unfavorable

Fixed Production Volume Variance = $318,150 Unfavorable

b. Budgeted Production for the month = 353,500 units