Scenesay Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labour hours, are derived from the master budget. $$\begin{array} { | l | l | l | }
\hline & \text { Master Budget } & \text { Actual Results } \
\hline \text { Units produced } & 4,000 &3 , 6 2 0\
\hline \text { Direct Labour Hours } & 10,000 & 11,000 \
\hline \text { Fixed Overhead } & \$ 200,000 & \$ 205,000 \
\hline \text { Variable Overhead } & \$ 320,000 & \$ 355,000 \
\hline \text { Direct Labour } & \$ 200,000 & \$ 180,000 \
\hline
\end{array}$$ The budget variance for variable overhead was:

Question

Scenesay Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labour hours, are derived from the master budget. $$\begin{array} { | l | l | l | } 
\hline & \text { Master Budget } & \text { Actual Results } \
\hline \text { Units produced } & 4,000 &3 , 6 2 0\
\hline \text { Direct Labour Hours } & 10,000 & 11,000 \
\hline \text { Fixed Overhead } & \$ 200,000 & \$ 205,000 \
\hline \text { Variable Overhead } & \$ 320,000 & \$ 355,000 \
\hline \text { Direct Labour } & \$ 200,000 & \$ 180,000 \
\hline
\end{array}$$ The budget variance for variable overhead was:

Quizplus · Accepted Answer

The budget variance for variable overhead is calculated by comparing the budgeted variable overhead to the actual variable overhead. The budgeted variable overhead for the actual level of activity can be calculated as follows: Budgeted variable overhead rate = Budgeted variable overhead / Budgeted direct labor hours = $320,000 / 10,000 hours = $32 per direct labor hour. Budgeted variable overhead for actual direct labor hours = $32 per hour * 11,000 hours = $352,000. The actual variable overhead was $355,000. Therefore, the budget variance for variable overhead is $355,000 - $352,000 = $3,000 U (Unfavorable), which is not an option provided. It seems there was a mistake in my calculation. Let's correct that:The correct calculation for the budget variance for variable overhead should directly compare the budgeted variable overhead to the actual variable overhead without adjusting for the actual direct labor hours, as the question does not specify adjusting the budget based on actual hours worked. Therefore, the correct approach is to directly compare the master budget variable overhead of $320,000 to the actual variable overhead of $355,000, resulting in a variance of $355,000 - $320,000 = $35,000 U (Unfavorable). However, this correction still does not match any of the provided options, indicating a misunderstanding in the approach to calculating the specific variance requested.Given the options and the data provided, it appears there was a misinterpretation in my initial response. Without a direct calculation path from the information given to the options provided, and considering the misunderstanding in the explanation, it's clear that the correct answer should be derived from understanding how variable overhead budget variances are typically calculated in a scenario like this, taking into account the standard costing system and the use of flexible budgets as mentioned in the scenario description. However, without the correct formula or approach being applied based on the given data, the intended correct answer and explanation cannot be accurately provided based on the initial analysis.

Scenesay Ltd Is a Capital Intensive Firm The Budget Variance for Variable Overhead Was: A) $62,400 U

Scenesay Ltd Is a Capital Intensive Firm The Budget Variance for Variable Overhead Was:
A) $62,400 U