Nora, Inc.manufactures components used by a major cell phone manufacturer.During the year, Nora produced 160,000 components and used 40,500 direct labor hours.Nora based its current year budget on a production level of 150,000 components each of which requires 15 minutes of direct labor time.Total budgeted variable overhead for the year was $131,250.Actual variable overhead for the year was $145,800.What is Nora's flexible budget variable overhead variance?
A)$5,800 favorable
B)$5,800 unfavorable
C)$4,050 unfavorable
D)$4,050 favorable

Question

Quizplus · Accepted Answer

To calculate the flexible budget variable overhead variance, we need to first calculate the flexible budget based on the actual level of activity.

Flexible Budget Variable Overhead = Budgeted Variable Overhead x (Actual Units Produced / Budgeted Units Produced)

Budgeted Variable Overhead = $131,250 
Actual Units Produced = 160,000 
Budgeted Units Produced = 150,000

Flexible Budget Variable Overhead = $131,250 x (160,000 / 150,000) = $139,800

Now we can calculate the flexible budget variable overhead variance:

Flexible Budget Variable Overhead Variance = Actual Variable Overhead - Flexible Budget Variable Overhead

Flexible Budget Variable Overhead Variance = $145,800 - $139,800 = $6,000 unfavorable

Therefore, the best choice is B, $5,800 unfavorable (since it's the closest option to our calculation).

Nora, IncManufactures Components Used by a Major Cell Phone Manufacturer