Auditory Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended:
Actual units produced: 13,000
Actual fixed overhead incurred: $742,000
Standard fixed overhead rate: $15 per hour
Budgeted fixed overhead: $720,000
Planned level of machine-hour activity: 48,000
If Auditory estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be:
A) $22,000 favorable.
B) $22,000 unfavorable.
C) $60,000 favorable.
D) $60,000 unfavorable.
E) None of the answers is correct.

Question

Quizplus · Accepted Answer

The fixed-overhead budget variance is calculated as the difference between the actual fixed overhead incurred and the budgeted fixed overhead. In this case, it is $742,000 (actual) - $720,000 (budgeted) = $22,000 unfavorable.

Auditory Company, Which Applies Overhead to Production on the Basis