Melrose Manufacturing produces gourmet blackberry preserves.Melrose based its current year budget on a production level of 540,000 jars of preserves using ½ hour direct labor time for each jar (which includes hand-sorting and trimming the berries).Total budgeted variable overhead for the year was $1,242,000.During the year, Melrose used 280,000 direct labor hours to produce 550,000 jars of blackberry preserves.Actual variable overhead for the year was $1,246,000.What is Melrose's flexible budget variable overhead variance?

Question

Quizplus · Accepted Answer

The flexible budget variable overhead variance is calculated as the difference between the actual variable overhead and the flexible budget variable overhead. The flexible budget variable overhead is calculated by multiplying the actual production level by the variable overhead rate. The variable overhead rate is calculated by dividing the total budgeted variable overhead by the budgeted production level.In this case, the actual production level is 550,000 jars of preserves, the actual variable overhead is $1,246,000, the total budgeted variable overhead is $1,242,000, and the budgeted production level is 540,000 jars of preserves.The variable overhead rate is calculated as follows:Variable overhead rate = Total budgeted variable overhead / Budgeted production levelVariable overhead rate = $1,242,000 / 540,000 jarsVariable overhead rate = $2.30 per jarThe flexible budget variable overhead is calculated as follows:Flexible budget variable overhead = Actual production level * Variable overhead rateFlexible budget variable overhead = 550,000 jars * $2.30 per jarFlexible budget variable overhead = $1,265,000The flexible budget variable overhead variance is calculated as follows:Flexible budget variable overhead variance = Actual variable overhead - Flexible budget variable overheadFlexible budget variable overhead variance = $1,246,000 - $1,265,000Flexible budget variable overhead variance = $19,000 unfavorableTherefore, the correct answer is B: $19,000 favorable.

Melrose Manufacturing Produces Gourmet Blackberry Preserves