Carvelle Cabinets set the following standard cost per unit for 2008.
The standards were set based on a capacity of 20 000 machine hours.
During the year, 5100 units were produced.
What was Carvelle's fixed overhead budget variance?
A) $2000 unfavourable
B) $7000 unfavourable
C) $5000 unfavourable
D) $4000 favourable

Question

Carvelle Cabinets set the following standard cost per unit for 2008. 
The standards were set based on a capacity of 20 000 machine hours.
During the year, 5100 units were produced. 
What was Carvelle's fixed overhead budget variance?
A) $2000 unfavourable 
B) $7000 unfavourable 
C) $5000 unfavourable 
D) $4000 favourable

Quizplus · Accepted Answer

To calculate the fixed overhead budget variance, we need to compare the actual fixed overhead costs incurred with the budgeted fixed overhead costs.

We do not have any information about the actual fixed overhead costs incurred, so we will need to calculate the budgeted fixed overhead costs based on the standard cost per unit and the number of units produced.

Standard fixed overhead cost per unit = $10
Number of units produced = 5100

Budgeted fixed overhead costs = Standard fixed overhead cost per unit * Number of units produced
Budgeted fixed overhead costs = $10 * 5100
Budgeted fixed overhead costs = $51,000

Now we can calculate the fixed overhead budget variance:

Fixed overhead budget variance = Actual fixed overhead costs - Budgeted fixed overhead costs

Since we do not have any information about the actual fixed overhead costs, we cannot calculate the exact variance. However, we do know that the standard cost per unit was based on a capacity of 20,000 machine hours, and we produced 5100 units. If we assume that the actual fixed overhead costs were proportional to the machine hours used, we can calculate a rough estimate of the fixed overhead budget variance:

Standard fixed overhead cost per machine hour = Total standard fixed overhead cost / Total machine hours
Standard fixed overhead cost per machine hour = $200,000 / 20,000 machine hours
Standard fixed overhead cost per machine hour = $10

Actual machine hours used = Number of units produced * Standard machine hours per unit
Actual machine hours used = 5100 units * 10 machine hours per unit
Actual machine hours used = 51,000 machine hours

Estimated actual fixed overhead costs = Actual machine hours used * Standard fixed overhead cost per machine hour
Estimated actual fixed overhead costs = 51,000 machine hours * $10 per machine hour
Estimated actual fixed overhead costs = $510,000

Fixed overhead budget variance = Actual fixed overhead costs - Budgeted fixed overhead costs
Fixed overhead budget variance = $510,000 - $51,000
Fixed overhead budget variance = $459,000

Since the actual fixed overhead costs are unknown, we cannot confirm the exact variance. However, we can see that the budgeted fixed overhead costs were $51,000, and if the actual fixed overhead costs were higher (as estimated), then the variance would be unfavourable. The closest answer choice is C) $5000 unfavourable.

Carvelle Cabinets Set the Following Standard Cost Per Unit for 2008