Question

The normal capacity in your company is of 8,000 units, budgeted manufacturing overhead is: SR48,000 variable and SR135,000 fixed. If the company had actual overhead costs of SR187,500 for 9,000 units produced, the difference between actual and budgeted costs is SR4,500 unfavorable and requires corrective actions.

Opinion
Justification

Answer 1

Actual overhead costs = SR187,500

Budgeted variable overhead cost for 8,000 units = SR48,000

Hence, Budgeted variable overhead cost 9,000 units = 48000 x 9,000/8,000

= SR54,000

Budgeted fixed overhead costs = SR135,000

Total budgeted overhead costs = Budgeted variable overhead cost 9,000 units + Budgeted fixed overhead costs

= 54,000+135,000

= SR189,000

Opinion

Difference between actual and budgeted cost is SR1,500 favorable.

Justification

Actual overhead cost = SR187,500

Budgeted overhead cost = SR189,000

Difference between actual and budgeted cost = 189,000-187,500

= SR1,500 favorable

Since Actual cost is less than the budgeted cost, it is favorable.

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