The following information was taken from the annual manufacturing overhead cost budget of Fergie Manufacturing. $\begin{array}{lr}
\text { Variable manufacturing overhead costs } & \$ 92,400 \
\text { Fixed manufacturing overhead costs } & \$ 55,440 \
\text { Normal production level in labor hours } & 30,800 \
\text { Normal production level in units } & 5,775 \
\text { Standard labor hours per unit } & 4
\end{array}$ During the year 5600 units were produced 18340 hours were worked and the actual manufacturing overhead was $151200. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours.
- Fergie's controllable overhead variance is

Question

Quizplus · Accepted Answer

The controllable overhead variance is the difference between the actual overhead costs and the budgeted (or expected) overhead costs for the actual level of activity. The actual manufacturing overhead is given as $151,200. To find the budgeted overhead costs for the actual level of activity, we first calculate the variable overhead rate per labor hour, then apply it to the actual labor hours worked, and add the fixed overhead costs.Variable overhead rate per labor hour = Total variable overhead / Normal production level in labor hours = $92,400 / 30,800 = $3 per labor hour.Budgeted overhead for actual activity = (Variable overhead rate per labor hour * Actual labor hours) + Fixed manufacturing overhead costs = ($3 * 18,340) + $55,440 = $55,020 + $55,440 = $110,460.Controllable overhead variance = Actual overhead - Budgeted overhead for actual activity = $151,200 - $110,460 = $40,740 U.However, none of the provided options match the calculated variance, indicating a possible misunderstanding in the calculation process. Given the options and the information provided, let's reassess:The correct approach involves understanding that the controllable variance focuses on the variable portion of the overhead costs, as the fixed costs are predetermined and not within the immediate control of the management for the short term.Given this, the correct calculation for the controllable variance should focus on the difference between the actual variable costs and what the variable costs should have been for the actual activity level. Since the actual fixed manufacturing overhead costs equaled the budgeted amount, and the problem seems to be in the calculation or interpretation of the given options, the correct answer should reflect the variance related to the variable costs or a misunderstanding in the calculation process.Revisiting the options and the calculation process, it's clear there was a mistake in the initial explanation provided. The correct calculation should involve determining the expected variable overhead for the actual activity and comparing it to the actual overhead costs, considering both variable and fixed components. However, without the exact breakdown of actual variable and fixed overhead in the question, the calculation provided cannot directly lead to the correct answer. The response was based on an incorrect interpretation of the calculation process for the controllable overhead variance.

The Following Information Was Taken from the Annual Manufacturing Overhead