Channel One Industries uses a standard costing system to apply manufacturing costs to its production process. In May, Channel One anticipated producing 2,450 units with fixed manufacturing overhead costs allocated at $7.40 per direct labor hour with a standard of 1.5 direct labor hours per unit. In May, actual production was 3,200 units and actual fixed manufacturing overhead costs were $23,000. What was Channel One's fixed manufacturing overhead budget variance for May?

Question

Quizplus · Accepted Answer

The fixed manufacturing overhead budget variance is calculated as the difference between the budgeted fixed overhead and the actual fixed overhead. The budgeted fixed overhead is calculated as the standard hours for actual production multiplied by the fixed overhead rate. For 3,200 units, the standard hours are 3,200 units * 1.5 hours/unit = 4,800 hours. The budgeted fixed overhead is 4,800 hours * $7.40/hour = $35,520. The actual fixed overhead is $23,000. The variance is $35,520 - $23,000 = $12,520 favorable. However, the question seems to have an error in the options, as none match this calculation.

Channel One Industries Uses a Standard Costing System to Apply