Question

Lihue, Inc., applies fixed overhead at the rate of $3.50 per unit. Budgeted fixed overhead was $1,229,550. This month 342,800 units were produced, and actual overhead was $1,210,000.

Required:

1. What are the fixed overhead price and production volume variances for Lihue?
2. What was budgeted production for the month?

Answer 1

Requirement A Fixed Overhead price variance Actual Costs Less : Budgeted costs Fixed Overhead price variance $ 1,210,000.00 $ 1,229,550.00 $ 19,550.00 Favourable Fixed Overhead production volume variance Budgeted overhead Less: Applied Overhead Fixed Overhead production volume variance $ 1,229,550.00 $ 1,199,800.00 $ 29,750.00 Unfavourable Requirement B Budgeted Production for the month 351300 Budgeted production is 8500 units (29750/3.50) greater than actual production it is more than actual production because the production volume variance is unfavourable Therefore budgeted production volume is 342800+8500