Moozi Dairy Products processes and sells two products: milk and butter. Last year, Moozi budgeted $1,200,000 of fixed manufacturing overhead and chose a denominator level of activity of 80,000 machine-hours. Each unit of milk at Moozi has a standard of 0.1 machine-hours and each unit of butter has a standard of 0.08 machine-hours. Last year, Moozi processed 560,000 units of milk and 340,000 units of butter. Moozi's total fixed manufacturing overhead incurred last year was $1,256,000. Actual machine-hours incurred for the year were 82,000. Moozi applies manufacturing overhead to its products on the basis of standard machine-hours.
Required:
Compute Moozi's fixed manufacturing overhead variances for last year.

Question

Nazih Ghqndour · Accepted Answer

Final Answer :

Budget variance = Actual fixed overhead − Budgeted fixed overhead
= $1,256,000 − $1,200,000 = $56,000 Unfavorable
Volume variance = Budgeted fixed overhead − Fixed overhead applied to work in process
= $1,200,000 − {[(560,000 units of milk × 0.1 machine-hour per unit of milk) + (340,000 units of butter × 0.08 machine-hour per unit of butter)] × ($1,200,000/80,000 machine-hours)}
= $1,200,000 − {[(56,000 machine-hours) + (27,200 machine-hours)] × $15 per machine-hour}
= $1,200,000 − {83,200 machine-hours) × $15 per machine-hour}
= $1,200,000 − $1,248,000
= $48,000 Favorable

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