Question

Herman Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended:

Actual units produced: 13,000
Actual fixed overhead incurred: $742,000
Standard fixed overhead rate: $15 per hour
Budgeted fixed overhead: $720,000
Planned level of machine-hour activity: 48,000
If Herman estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be:
A. $22,000 favorable.
B. $22,000 unfavorable.
C. $60,000 favorable.
D. $60,000 unfavorable.
E. some other amount.

Answer 1

The variance is calculated by subtracting the budgeted fixed overhead from the actual fixed overhead incurred. As the actual was more than budgeted, the variance of $22,000 is unfavorable.

Step-by-step explanation:

The fixed-overhead budget variance for Herman Company is calculated by comparing the budgeted fixed overhead with the actual fixed overhead incurred. The budgeted fixed overhead is given as $720,000, and the actual fixed overhead incurred is $742,000. To find the fixed-overhead budget variance, subtract the budgeted amount from the actual amount: $742,000 - $720,000 = $22,000. Since the actual overhead is higher than the budgeted amount, this represents an unfavorable variance. Thus, the answer is B. $22,000 unfavorable.