Price Company's flexible budget shows $10,710 of overhead at 75% of capacity, which was the operating level achieved during May. However, the company applied overhead to production during May at a rate of $2.00 per direct labor hour based on a budgeted operating level of 6,120 direct labor hours (90% of capacity). If overhead actually incurred was $11,183 during May, the controllable variance for the month was:

Question

Quizplus · Accepted Answer

The controllable variance is calculated as the difference between the actual overhead costs and the budgeted (or expected) overhead costs at the achieved level of activity. In this case, the actual overhead was $11,183, and the budgeted overhead at the achieved level of activity (75% of capacity) was $10,710. Therefore, the controllable variance is $11,183 - $10,710 = $473 unfavorable, because the actual costs exceeded the budgeted costs.

Price Company's Flexible Budget Shows $10,710 of Overhead at 75