Prevlar’s budget for variable overhead and fixed overhead
revealed the following information for an anticipated 41,000 hours
of activity: variable overhead, $397,700; fixed overhead,
$625,000.
The company actually worked 44,000 hours and actual overhead
incurred was: variable, $406,500; fixed, $628,000.
Required:
- Compute the company's total cost variance for variable overhead and fixed overhead if the firm uses a static budget to help assess performance.
- Compute the company's total cost variance for variable overhead and fixed overhead if the firm uses a static budget to help assess performance. Assuming the use of a flexible budget.
- Which of the two budgets (static or flexible) is preferred for performance evaluations?
Homework Answers
| Answer | ||
| Event | Particulars | Amount |
| A | Actual (406500+628000) | $ 1,034,500 |
| Less: Static Budget (397700+625000) | $ 1,022,700 | |
| Variance, Unfavorable | $ 11,800 | |
| B | Actual (406500+628000) | $ 1,034,500 |
| Less: Flexible Budget ($397700*44000/41000 + $625,000) | $ 1,051,800 | |
| Variance, favorable | $ 17,300 | |
| C | Preferred for performance evaluation | Flexible Budget |
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