Blue Gum Ltd uses a standard costing system. The firm estimates that it will ope
ID: 2565253 • Letter: B
Question
Blue Gum Ltd uses a standard costing system. The firm estimates that it will operate its manufacturing facilities at 149,000 machine hours for the year. The estimate for total budgeted overhead is $987,000. The standard variable overhead rate is estimated to be $4.0 per machine hour or $12 per unit. The actual data for the year are presented below:
Actual units produced
267,000
Actual machine hours
365,000
Actual variable overhead
900,000
Actual fixed overhead
449,000
Calculate and enter the amount of fixed overhead volume variance in the answer space below: (Show negative sign in front of input if the variance is favourable)
Actual units produced
267,000
Actual machine hours
365,000
Actual variable overhead
900,000
Actual fixed overhead
449,000
Explanation / Answer
Fixed overhead volume variance is calculated by subtracting the Budgeted Fixed Overhead from Applied Fixed Overhead.
Fixed Overhead Volume Variance = Applied Fixed Overhead - Budgeted Fixed Overhead.
Applied Fixed Overhead = Standard Fixed Overhead Rate × Standard Hours Allowed for actual units produced
Calculation of Budgeted Fixed Overhead
Budgeted Time for producing a unit = Variable Overhead per unit / Staandard Variable rate per machine hour
= $12 / $4 = 3 hours
Total Variable Budgeted Overheads = 149,000 hours x $4 per machine hour = $596,000
Fixed Budgeted Overheads = Total 'budgeted overheads - Variable budgeted overheads
= $987,000 - $596,000 = $391,000
Fixed Budgeted Overhead rate per machine hour = $391,000 / 149,000 machine hours
= $2.62416 per machine hour
Standard Machine hours required for producing actual units = Budgeted Time for producing a unit x Actual units produced
= 3 hours x 267,000 units = 801,000 hours
Applied Fixed Overhead = Standard Fixed Overhead Rate × Standard Hours Allowed for actual units produced
= $2.62416 per machine hour x 801,000 = $2,101,952.16
Fixed Overhead Volume Variance = Applied Fixed Overhead - Budgeted Fixed Overhead.
= $2,101,952.16 - $391,000 = -1,710,952.16
The same can be calculated by considering the number of units produced instead of machine hours.
Therefore, there is favorable fixed overhead volume variance of $1,710,952.16