Question

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:

Answer 1

Answer:

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