Question

Duncanville, Inc., has the following overhead standards:

Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
Duncanville's fixed-overhead budget variance is:
A. $6,000 unfavorable.
B. $7,000 unfavorable.
C. $10,000 unfavorable.
D. $12,000 unfavorable.
E. not listed above.

Answer 1

Duncanville Inc.'s fixed overhead budget variance is calculated by comparing the budgeted and actual fixed overhead costs. The budgeted cost was $200,000, while the actual cost was $210,000, leading to an unfavorable variance of $10,000.

Step-by-step explanation:

To calculate Duncanville Inc.'s fixed overhead budget variance, we need to compare the budgeted fixed overhead costs to the actual fixed overhead costs incurred. The budgeted fixed costs are determined by the original plan which calls for 20,000 machine hours at a rate of $10 per hour, totaling $200,000 ($10/hour * 20,000 hours).

The actual fixed overhead incurred is $210,000. Therefore, the fixed-overhead budget variance is the difference between the budgeted amount and the actual amount incurred:

Budgeted Fixed Overhead: $200,000
Actual Fixed Overhead: $210,000
Variance: Actual - Budgeted = $210,000 - $200,000 = $10,000

As a result, the variance is $10,000 unfavorable, since the actual costs exceeded the budgeted costs.