Michetti Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the month appear below:
The company based its original budget on 4,300 machine-hours. The company actually worked 4,140 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 4,200 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month?
A) $660 favorable
B) $660 unfavorable
C) $850 unfavorable
D) $850 favorable

Question

Michetti Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the month appear below: 
The company based its original budget on 4,300 machine-hours. The company actually worked 4,140 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 4,200 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month?
A) $660 favorable 
B) $660 unfavorable 
C) $850 unfavorable 
D) $850 favorable

Quizplus · Accepted Answer

We need to calculate the fixed manufacturing overhead budget variance which is the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs based on the original budgeted machine hours.

Actual fixed overhead costs = $23,750 
Budgeted fixed overhead costs based on original budgeted machine hours = $24,600 (4,300 machine hours * $5.72 per machine hour)

Fixed manufacturing overhead budget variance = Actual fixed overhead costs - Budgeted fixed overhead costs based on original budgeted machine hours 
= $23,750 - $24,600 
= $850 unfavorable.

Michetti Corporation Applies Manufacturing Overhead to Products on the Basis