Question

Over and​ Under, Inc. manufactures weaving looms.
Before the period​ began, the company prepared the following manufacturing overhead budget for an expected activity level of​ 15,000 direct labor hours​ (DL hrs):
Variable Manufacturing Overhead Costs ​$322,500
Fixed Manufacturing Overhead Costs ​$205,000
By the end of the​ period, the company noted that​ 3,000 fewer direct labor hours were logged than expected. The total actual manufacturing overhead costs incurred during the period was​ $545,000, of​ which, $325,000 was fixed.
1. Which of the following statements is correct for the above​ data?
A. The​ company’s flexible budget variance for total manufacturing overhead costs during the period equals​ $64,500.
B. The master budget variance related to fixed manufacturing overhead costs for the period equals​ $17,500.
C. The flexible budget variance for variable manufacturing overhead costs is favorable because fewer DL hrs were logged during production than expected.
D. The total volume variance can be calculated by multiplying​$21.50 by the difference between the expected DL hrs and the actual DL hrs.
E. The volume variance for fixed manufacturing overhead costs is negative.

Answer 1

Answer:

The answer is C.

The flexible budget variance for variable manufacturing overhead costs is favorable because fewer DL hrs were logged during production than expected.

Explanation:

The flexible budget variance for manufacturing overhead =

                     (Actual DL hrs * OAR) - Actual Overhead

          =    ( 12,000* $21.50 )    - ( $545,000 - $325,000)

      =             $258,000 - $220,000

      =            $38,500 Fav.

Answer 2

The correct statement for the above data is E. The volume variance for fixed manufacturing overhead costs is negative.

Data and Calculations:

                                                                    Budgeted       Actual       Variance

Activity level (Direct labor hours)                    15,000        12,000        (3,000)

Variable Manufacturing Overhead Costs $322,500  $220,000    $102,500

Variable Manufacturing overhead per unit   $21.50        $18.33

Fixed Manufacturing Overhead Costs     ​$205,000  $325,000   ($120,000)

Fixed overhead cost per unit =                      $13.67        $27.08

Total manufacturing overhead costs =    $527,000  $545,000       ($17,500)

Thus, the volume variance for fixed manufacturing overhead costs is ($120,000).

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