The Ferris Company applies manufacturing overhead costs to products on the basis of standard direct labor-hours. The standard cost card shows that 3 direct labor-hours are required per unit of product. For August, the company budgeted to work 90,000 direct labor-hours and to incur the following total manufacturing overhead costs: During August, the company completed 28,000 units of product, worked 86,000 direct labor-hours, and incurred the following total manufacturing overhead costs: The denominator activity in the predetermined overhead rate is 90,000 direct labor-hours.
-For August, the fixed manufacturing overhead budget variance is:
A) $3,500 F
B) $3,500 U
C) $3,200 F
D) $3,200 U

Question

The Ferris Company applies manufacturing overhead costs to products on the basis of standard direct labor-hours. The standard cost card shows that 3 direct labor-hours are required per unit of product. For August, the company budgeted to work 90,000 direct labor-hours and to incur the following total manufacturing overhead costs:  During August, the company completed 28,000 units of product, worked 86,000 direct labor-hours, and incurred the following total manufacturing overhead costs:  The denominator activity in the predetermined overhead rate is 90,000 direct labor-hours.
-For August, the fixed manufacturing overhead budget variance is:
A) $3,500 F 
B) $3,500 U 
C) $3,200 F 
D) $3,200 U

Quizplus · Accepted Answer

The fixed manufacturing overhead budget variance is the difference between the budgeted fixed manufacturing overhead and the actual fixed manufacturing overhead. In this case, the budgeted fixed manufacturing overhead is $35,000 and the actual fixed manufacturing overhead is $31,500. Therefore, the fixed manufacturing overhead budget variance is $3,500 F.

The Ferris Company Applies Manufacturing Overhead Costs to Products on the Basis