Question

A manufacturing company has a standard costing system based on standard direct labor-hours (DLHS) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below.

Denominator level of activity 7,380
Overhead costs at the denominator activity level:
Variable overhead cost $10,150
Fixed overhead cost $80,388
The following data pertain to operations for the most recent period:
Actual hours 7,500 DLHS
Standard hours allowed for the actual output 7,154 DI HS
Actual total variable manufacturing overhead cost $43,880
Actual total fixed manufacturing overhead cost $79, 280
The fixed manufacturing overhead budget variance for the period is closest to:
Multiple Choice
A. $586F
B. $3,806 F
C. $1020 F
D. $3.806 F

Answer 1

The fixed manufacturing overhead budget variance for the period is $1,108 Favorable because the actual fixed overhead cost was lower than the budgeted cost by this amount.

Step-by-step explanation:

The fixed manufacturing overhead budget variance is calculated by subtracting the budgeted fixed manufacturing overhead from the actual fixed manufacturing overhead incurred. In this scenario, the budgeted fixed overhead cost is $80,388 (as mentioned in the data) while the actual fixed overhead cost is $79,280. To find the variance:

Budget Variance = Budgeted fixed overhead - Actual fixed overhead

Budget Variance = $80,388 - $79,280

Budget Variance = $1,108

Since the actual costs were less than the budgeted costs, this is a favorable variance. Therefore, the fixed manufacturing overhead budget variance for the period is $1,108 Favorable (option F, according to the original answers provided, even though 'F' is not listed, the amount suggests a favorable variance). This calculation helps businesses to assess their cost management efficiency and make informed decisions.