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2 November, 12:58

40. The Battaglia Co. produces lounge chairs. At a budgeted amount of 10,000 lounge chairs the manufacturing overhead is $50,000 variable and $135,000 fixed. If Battaglia had actual variable manufacturing overhead of $60,500 and actual fixed manufacturing overhead of $125,000 for 11,000 lounge chairs produced, what would the spending (flexible budget) variance be for the total manufacturing overhead? A. $500 unfavorable B. $4,500 unfavorable C. $4,500 favorable D. $500 favorable

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  1. 2 November, 15:13
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    C. $4,500 favorable

    Explanation:

    Spending Variance is the difference between the actual and estimated value of the expense. In this question we need to calculate the variance of total manufacturing overhead.

    Variable

    Actual Variable cost = $60,500

    Manufacturing overhead application rate = Budgeted overhead / Budgeted units = $50,000 / 10,000 units = $5 per unit

    Applied Overhead = Actual production x application rate = 11,000 units x $5 = $55,000

    Variance = $60,500 - $55,000 = $5,500 unfavorable

    Fixed

    Actual fixed overhead = $125,000

    Budgeted Fixed overhead = $135,000

    Variance = $135,000 - $125,000 = $10,000 Favorable

    Total Variance = Variance of variable manufacturing overhead cost + Variance of fixed manufacturing overhead cost

    Total Variance = $10,000 Favorable - $5,500 unfavorable

    Total Variance = $4,500 Favorable
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