Question

Preston Products provides the following data for the year: Actual production and sales for the year 195 units Budgeted production and sales for the year 200 units Budgeted fixed costs $540,000 Actual fixed costs $600,000 What is the fixed overhead flexible-budget variance for Preston Products?

Answer 1

Answer:

A. $60,000 U

Explanation:

Given that

Budgeted fixed cost = 540,000

Actual fixed cost = 600,000

Recall that,

fixed overhead flexible-budget variance = Actual amount - standard (budgeted) amount

Thus,

Variance = 600,000 - 540,000

= $60,000 Unfavorable

It is unfavorable because the actual cost is higher than the budgeted cost. When actual cost is less than budgeted cost, it is favorable.

Answer 2

Answer:

D) $73,500U

Explanation:

Variance is the difference between standard and actual costs. Standard cost can also be referred to as Budgeted costs. In the tree of total overhead variance, there are two major branches of variances:- Total Variable Overhead Variance and Total Fixed Overhead Variance. Under the total variable overhead variance are two branches which include Expenditure and Efficiency. The total fixed overhead variance include expenditure and volume and under these a e capacity and efficiency respectively.

 In calculating the total fixed overhead variance, the fixed overhead recovery rate, actual production and actual fixed overhead are needed. This can be denoted as: FORR × AP - FO(A). (A) represents at actual. To calculate for the Fixed Overhead Recovery Rate(F.O.R.R), the fixed overhead is divided by standard units.

 Now, we can solve the problem using the above stated formula.

  F.O.R.R = $540,000 ÷ 200 units = $2,700.

Therefore, using the formula,

($2,700 × 195 units) - $600,000

= $526,500 - $600,000

= $73,500A. "A" denotes adverse or unfavorable. This occurs when there is a minus in front of the figure. This particular answer suppose to be -$73,500 but due to this being an amount in a currency and not just a random figure, the minus sign is taken away and the "A" sign attached to it. If it had no minus signs in front, the sign "A" will be changed to "F" signifying Favourable