A company's flexible budget for the range of 35,000 units to 45,000 units of production showed variable overhead costs of $2 per unit and fixed overhead costs of $72,000. The company incurred total overhead costs of $148,800 while operating at a volume of 40,000 units. The total controllable cost variance is:
A) $6,800 unfavorable.
B) $3,200 unfavorable.
C) $3,200 favorable.
D) $10,000 favorable.
E) $6,800 favorable.

Question

Quizplus · Accepted Answer

To calculate the total controllable cost variance, we need to compare the actual overhead costs with the flexible budget amount at actual output.

Flexible budget at 40,000 units: 
Variable overhead cost = 40,000 x $2 = $80,000 
Fixed overhead cost = $72,000

Total flexible budget = $152,000

Total controllable cost variance = Flexible budget - Actual overhead costs 
= $152,000 - $148,800 
= $3,200 favorable

A Company's Flexible Budget for the Range of 35,000 Units