Plantier Incorporated makes a single product--a cooling coil used in commercial refrigerators. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. The budgeted fixed manufacturing overhead for the year was $136,950 and the budgeted hours were 27,500 machine-hours. Data concerning the actual results for the most recent year appear below:
Required:
a. Determine the fixed overhead budget variance for the year.
b. Determine the fixed overhead volume variance for the year.

Question

Plantier Incorporated makes a single product--a cooling coil used in commercial refrigerators. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. The budgeted fixed manufacturing overhead for the year was $136,950 and the budgeted hours were 27,500 machine-hours. Data concerning the actual results for the most recent year appear below:

Required:
a. Determine the fixed overhead budget variance for the year.
b. Determine the fixed overhead volume variance for the year.

peggy roberts · Accepted Answer

Final Answer :

a. Budget variance = Actual fixed overhead − Budgeted fixed overhead
= $154,950 − $136,950 = $18,000 Unfavorable
b. Fixed component of the predetermined overhead rate = $136,950/27,500 machine-hours
= $4.98 per machine-hour
Volume variance = Budgeted fixed overhead − Fixed overhead applied to work in process
= $136,950 − ($4.98 per machine-hour × 29,700 machine-hours)
= $136,950 − ($147,906)
= $10,956 Favorable

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