Fixed Manufacturing Overhead Volume Variance Accounting

Question

A manufacturer of sound equipment uses a standard costing system with fixed manufacturing overhead applied based on Machine Hours. According to their standards, each unit requires 2 Machine Hours.

 

For the most recent period :

 

Budgeted Units : 1,400

Actual Units : 1,586

Actual Machine Hours : 3,400

 

Fixed Manufacturing Overhead -> budget : 40,650 actual : 41,600

 

Question : The Fixed Manufacturing Overhead Volume Variance for the period was closest to :

A) 4450.64 unfavorable B) 2,725.94 unfavorable C) 5400.64 favorable D) 8,710.71 favorable E) none of above

Answer was C) but I don't get how, please show help with steps.

 

 

Answer 1

budgeted units = 1,400; budgeted overhead = $40,650

budgeted overhead per unit = $29.035714

 

actual units = 1,586; actual overhead = $41,600

 

Variance = (Actual units - Budgeted units) * budgeted overhead per unit

 

V = (1,586 - 1400) * $29.035714 = $5,400.64

this variance is favorable because the actual expense was less than the budgeted (expected) expense. had the units been built at the expected (budgeted) rate, the overhead cost would have been $46,050.

 

if we subtract $41,600 from $46,050 we get $5,400.