Carl Jones Company's master budget for the year just completed was based on 100% capacity and included 50,000 machine hours and $300,000 total factory overhead.(That is,the denominator volume,for purposes of calculating the fixed overhead application rate,is defined as 100% capacity. )Budgeted fixed overhead at 70% factory capacity is $200,000 (and 35,000 machine hours).The company operated at 80% capacity for the year,and incurred $275,000 total factory overhead.
Required: (a)Determine the factory overhead flexible-budget variance for the year just completed.Show calculations.(b)Calculate the factory overhead production-volume variance for the year just completed.Show calculations.(c)Supply an interpretation of each of the two variances calculated above.

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Feedback: 11ea6e70_bd40_bb59_8f54_25aa94c7df36_TB1699_00 (c)The total overhead flexible-budget (FB)variance measures the difference between actual total overhead cost for a period and the FB for overhead,based on outputs (or equivalently,standard allowed resource inputs for actual output of the period).This sum of this variance plus the production-volume variance = the total overhead variance for the period.Note that the total overhead FB variance can be (in a three-variance breakdown of the total overhead variance for a period)broken down into a total overhead spending variance and the overhead efficiency variance.The factory overhead production-volume variance represents the difference between budgeted fixed overhead for the period and the applied fixed overhead for the actual units produced.That is,for product-costing purposes,we "unitize" budgeted fixed overhead costs by choosing a particular volume (called the denominator volume)over which those budgeted fixed costs are spread.If actual volume of activity differs from the denominator volume,a production-volume variance will arise.Note that the production-volume variance is also called the capacity variance,the idle-capacity variance,and the denominator- level variance.This variance has little to do with short-term cost control,however it can be viewed as a (rough)measure of capacity utilization.As noted above,the production- volume variance plus the total overhead flexible-budget (FB)variance together explain the total overhead variance for the period.

Carl Jones Company's Master Budget for the Year Just Completed