Question

Use the following data for questions 25 thru 31:

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed based on planned activity of 1,800 core tests:

(Standard Hours or Quantity = SH/Q, Standard Price or Rate = SP/R, Price Per Unit = PP/U).

Direct Materials: SH/Q = 3 pounds, SP/R = $0.75 per pound, PP/U = $2.25
Direct Labor: SH/Q = 0.4 hours, SP/R = $12 per hour, PP/U = $4.80
Variable Manufacturing Overhead: SH/Q = 0.4 hours, SP/R = $9 per hour, PP/U = $3.60
Fixed Manufacturing Overhead: SP/R = $6,800

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of standard direct labor-hours. The following events occurred during March:

• 7,200 pounds of sand were purchased at a cost of $6,120.
• 7,200 pounds of sand were used for core tests.
• 840 actual direct labor-hours were worked at a cost of $8,610.
• Actual variable manufacturing overhead incurred was $7,240.
• Actual fixed manufacturing overhead incurred was $6,500.

The total fixed manufacturing overhead variance for March is:
A. $300 unfavorable
B. $300 favorable
C. $40 unfavorable
D. $40 favorable

Answer 1

The total fixed manufacturing overhead variance for March is $300 unfavorable.

Thus the correct option is A.

Step-by-step explanation:

To calculate the total fixed manufacturing overhead variance, we need to compare the actual fixed manufacturing overhead incurred with the budgeted fixed manufacturing overhead.

The budgeted fixed manufacturing overhead is given as $6,800.

The actual fixed manufacturing overhead incurred during March is $6,500.

To find the variance, subtract the actual amount from the budgeted amount: $6,800 - $6,500 = $300.

In this context, an unfavorable variance means that the actual fixed manufacturing overhead exceeded the budgeted amount, leading to higher costs than planned.

This could be due to factors such as unexpected increases in fixed overhead costs or inefficient use of resources.

Understanding variances is crucial for cost control and performance evaluation.

A favorable variance implies that costs were lower than expected, while an unfavorable variance indicates higher-than-anticipated costs.

In this specific case, the $300 unfavorable variance suggests that the fixed manufacturing overhead costs exceeded the planned budget, requiring further investigation into the reasons behind this variance for future cost management improvements.