Question

Chong Corporation recently prepared a manufacturing cost budget for an output of 50,000 units, as follows: Direct materials $100,000 Direct labor 50,000 Variable overhead 75,000 Fixed overhead 100,000 Actual units produced amounted to 60,000. Actual costs incurred were: direct materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000. If Chong evaluated performance by the use of a flexible budget, a performance report would reveal a total variance of: $42,000 unfavorable. $23,000 favorable. $3,000 favorable. $27,000 unfavorable. None of the answers is correct.

Answer 1

Solution and Explanation:

The following table has been made in order to find out the total variance cost that has been incurred and the total cost

Particulars Cost formula based    Flexible budget        Actual Variance  

                            on 50000 units          on the basis of

                                                                      60000 unit

Direct materials          $2                            120000 $110000 10000 F  

The direct labour             $1                           60000      60000 0  

Variable overhead              $1.5                      90000 100000 10000 U  

Fixed overhead                $100000               100000 97000 3000 F  

The total cost                                                370000  367000 3000 F  

Where F stands for – favourable and U stands for unfavourable

The total variance cost after the above calculations is = $3000 F