Question

g Fixed production costs for the Velvet Corporation are budgeted at $80,000, assuming 40,000 units of production. Actual sales for the period were 35,000 units, while actual production was 40,000 units. Actual fixed costs were $70,000. What is the budget variance?

Answer 1

Budget variance= $10,000 unfavorable

Step-by-step explanation:

The fixed cost variance is the difference between the actual fixed cost and the absorbed fixed cost.

The absorbed fixed cost = POAR × actual production unit

POAR =budgeted fixed cost/Budgeted production units

= $80,000,/ 40,000

= $2 per unit

POAR - Predetermined overhead absorption rate

Absorbed overhead= $2 × 40,000 = $80,000

Budget Variance = $70,000 -$80,000

= $10,000 unfavorable