A company's flexible budget for 48,000 units of production showed variable overhead costs of $72,000 and fixed overhead costs of $64,000. The company incurred overhead costs of $122,800 while operating at a volume of 40,000 units. The total controllable cost variance is:

A) $ 1,200 favorable. B) $ 1,200 unfavorable. C) $13,200 favorable. D) $13,200 unfavorable. E) $15,200 favorable.

A) $ 1,200 favorable

Explanation:

The standard variable overhead cost per unit is equal to

= Variable overhead cost at a given units/number of units

= $72,000 / 48,000 units

= $1.5 per unit

Controllable cost variance

$

Standard cost for 40,00 units = ($1.5 * 40,000) = 60,000

Actual variable overheads (122,800 - 64,000) 58,800

Variance 1,200 favourable

Note that we had to deduct $64,000 fixed costs from the total overhead figure because it is uncontrollable.

A) $ 1,200 favorable

Explanation:

Computation of variance

Flexible Budget Units 48,000 units

Total variable costs at budget level $ 72,000

Variable costs per unit = $ 72,000 / 48,000 $ 1.50 per unit

Actual Production Units 40,000 units

Total overhead costs

Variable $ 1.50 * 40,000 units $ 60,000

Fixed overhead costs $ 64,000

Total Budgeted overhead costs at 40,000 units $ 124,000

Actual Overhead costs $ 122,800

Variance Favorable $ 1,200