Question

Baltimore Products has an estimated practical capacity of 90,000 machine hours, and each unit requires two machine hours. The following data apply to a recent accounting period:
Actual fixed overhead $ 442,000
Actual machine hours worked 86,000
Actual finished units produced 43,000
Budgeted fixed overhead $450,000
Baltimore's fixed overhead spending and production volume variance are:

(A) $ 8,000 unfavorable and $ 20,000 unfavorable, respectively
(B) $ 8,000 favorable and $ 20,000 unfavorable, respectively
(C) $ 12,000 favorable and $ 20,000 unfavorable, respectively
(D) $ 12,000 unfavorable and $ 20,000 unfavorable, respectively

Answer 1

Answer:

Option "C" is the correct answer to the following statement.

Explanation:

Computation:

Fixed overhead spending = Actual fixed overhead - Budgeted fixed overhead

= $442,000  - $450,000

= - $8,000

$8000 Favorable

Budgeted overhead rate per unit = Budgeted fixed overhead / Total Budgeted machine hours

= $450,000 / 90,000 = $5

Budgeted units = Total Budgeted machine hours / number of hours per unit required

= 90,000 / 2 = 45,000 units

Production volume variance = (Actual units - Budgeted units) × Budgeted overhead rate per unit × number of hours per unit required

= (43,000 - 45,000) × $5 × 2

= - $20,000

$20,000 Unfavorable