Question

Brady and McKenzie, Inc. manufactures 1960s style surfboards. Before the new period began, management prepared the following manufacturing overhead budget for an expected activity level of 20,000 direct labor hours:

Variable manufacturing overhead costs: $300,000
Fixed manufacturing overhead costs: $250,000

At the end of the period, the company noted that 4,000 fewer direct labor hours were logged than expected. The total actual manufacturing overhead costs during the period were $575,000, $220,000 of which was variable manufacturing overhead. With regard to the data above, which of the following statements is correct?

a) The master budget variance related to variable manufacturing overhead is $105,000 u.
b) The volume variance for manufacturing overhead is $60,000 f.
c) Assuming a materiality threshold of $50,000, the flexible budget variance for fixed manufacturing overhead should be investigated.
d) The volume variance for variable manufacturing overhead is $80,000 f.
e) More than one of the above statements is correct.

Answer 1

The volume variance for variable manufacturing overhead is $80,000 f.

Step-by-step explanation:

The correct statement regarding the data provided is option d) The volume variance for variable manufacturing overhead is $80,000 f.

In this case, the expected activity level was 20,000 direct labor hours but only 16,000 hours were logged, resulting in a decrease of 4,000 hours. The actual manufacturing overhead costs during the period were $575,000, with $220,000 of variable manufacturing overhead costs.

The volume variance for variable manufacturing overhead can be calculated using the formula: Actual Hours - Expected Hours * Variable Overhead Rate. Therefore, the volume variance is: (16,000 - 20,000) * $5 = -$80,000. Since the result is negative, it means the actual hours were lower than expected, resulting in a favorable variance of $80,000.