Skinner Incorporated, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 13,000
Actual fixed overhead incurred: $742,000
Standard fixed overhead rate: $15 per hour
Budgeted fixed overhead: $720,000
Planned level of machine-hour activity: 48,000
If Skinner estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be:

Question

Quizplus · Accepted Answer

First, calculate the standard fixed overhead rate:

Standard fixed overhead rate = Budgeted fixed overhead / Planned level of machine-hour activity
= $720,000 / 48,000 hours
= $15 per hour

Next, calculate the total fixed overhead applied:

Fixed overhead applied = Actual units produced x Standard fixed overhead rate x Estimated hours per unit
= 13,000 units x $15 per hour x 4 hours per unit
= $780,000

Finally, calculate the fixed-overhead budget variance:

Fixed-overhead budget variance = Actual fixed overhead incurred - Fixed overhead applied
= $742,000 - $780,000
= $38,000 unfavorable

Therefore, the correct answer is B, indicating that the fixed-overhead budget variance is $22,000 unfavorable.

Skinner Incorporated, Which Applies Overhead to Production on the Basis