Question

Moleno Company produces a single product and uses a standard cost system. The normal production volume is 120,000 units; each unit requires 5 direct labor hours at standard. Overhead is applied on the basis of direct labor hours. The budgeted overhead for the coming year is as follows: Line item description amount FOH $2,160,000* VOH $1,440,000. At normal volume during the year, Moleno produced 118,600 units, worked 592,300 direct labor hours, and incurred actual fixed overhead costs of $2,150,400 and actual variable overhead costs of $1,422,800. The variance for fixed overhead is:

a) $9,600 favorable
b) $9,600 unfavorable
c) $9,600 standard
d) $9,600 overapplied

Answer 1

The variance for fixed overhead is $9,600 unfavorable. In this case, the actual fixed overhead costs were $2,150,400 and the budgeted fixed overhead costs were $2,160,000.

Step-by-step explanation:

The variance for fixed overhead is $9,600 unfavorable. This means that the actual fixed overhead costs exceeded the budgeted fixed overhead costs by $9,600. The formula to calculate the fixed overhead variance is:

Fixed Overhead Variance = Actual Fixed Overhead - Budgeted Fixed Overhead

In this case, the actual fixed overhead costs were $2,150,400 and the budgeted fixed overhead costs were $2,160,000. So, the variance is:

Variance = $2,150,400 - $2,160,000 = -$9,600

Since the variance is negative, it is considered unfavorable.