Chong Corporation recently prepared a manufacturing cost budget for an output of 50,000 units, as follows: Direct materials $100,000 Direct labor 50,000 Variable overhead 75,000 Fixed overhead 100,000 Actual units produced amounted to 60,000. Actual costs incurred were: direct materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000. If Chong evaluated performance by the use of a flexible budget, a performance report would reveal a total variance of:

The variance for Chong Corporation is 3000 favorable using the Flexible Budget.

Explanation:

The flexible budget is calculated by multiplying per unit variable cost to actual units produced.

Per unit cost Actual units Total $

Direct Material $2 ($100,000/50,000) 60,000 120,000

Direct Labor $1 ($50,000/50,000) 60,000 60,000

Variable Overheads $1.5 ($75,000/50,000) 60,000 90,000

Fixed Overhead (Note1) 100,000

Total 370,000

Note1 : Budget Fixed overhead is $100,000 which will remain same in the Flexible Budget. The budgeted fixed cost is subtracted from Actual Fixed overhead to find out the difference, which is $3000 ($100,000-$97,000).

The total actual expense is $367,000 which is calculated by adding all the actual Direct Material, Direct Labor, Variable Overhead, and Fixed Overhead.

The difference between Flexible Budget total and Actual Expense Total shows the Total Variance of $3000 ($370,000 - $367,000) Favorable.