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

First, we need to calculate the budgeted fixed overhead rate per hour:

$720,000 ÷ 48,000 machine hours = $15 per machine hour

Next, we can calculate the fixed overhead applied to production:

Actual units produced × Standard fixed overhead rate per hour × Planned hours per unit = Fixed overhead applied to production

13,000 units × $15 per hour × 4 hours per unit = $7,800,000

Now we can calculate the fixed overhead budget variance:

Actual fixed overhead incurred – Fixed overhead applied to production 
$742,000 – $7,800,000 = $22,000 unfavorable variance

Therefore, the answer is B: $22,000 unfavorable.

Auditory Company, Which Applies Overhead to Production on the Basis