Auditory Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 12,000 Actual fixed overhead incurred: $750,000 Standard fixed overhead rate: $16 per hour Budgeted fixed overhead: $740,000 Planned level of machine-hour activity: 45,000 If Auditory estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be:

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Business

Abbie Farmer

6 May, 06:28

Auditory Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 12,000 Actual fixed overhead incurred: $750,000 Standard fixed overhead rate: $16 per hour Budgeted fixed overhead: $740,000 Planned level of machine-hour activity: 45,000 If Auditory estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be:

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Sydney · Answer 1

Fixed overhead variance = $18,000 favorable

Explanation:

Giving the following information:

Actual units produced: 12,000

Actual fixed overhead incurred: $750,000

Standard fixed overhead rate: $16 per hour

Budgeted fixed overhead: $740,000

Planned level of machine-hour activity: 45,000

Auditory estimates four hours to manufacture a completed unit.

First, we need to calculate the standard fixed costs for the period:

Allocated overhead = Estimated manufacturing overhead rate * Actual amount of allocation base

Allocated overhead = 16 * (12,000*4) = $768,000

Actual overhead = 750,000

Fixed overhead variance = actual - allocated

Fixed overhead variance = 750,000 - 768,000 = $18,000 favorable