Question

The following data for February has been provided by Gillard Corporation. Denominator level of activity. Budgeted fixed manufacturing overhead costs. Actual level of activity. Standard machine-hours allowed for the actual output... Actual fixed manufacturing overhead costs 3,700 machine-hours $68,820 4,100 machine-hours 4,000 machine-hours $69,960 Fixed component of the predetermined overhead rate: $18.60 per machine hour A. Compute the budget variance for February (show computations): B. Compute the volume variance for February (show computations)

Answer 1

(A) Budget variance = Budgeted overheads - Actual overheads

We have, Budgeted overheads = $68820, Actual overheads = $69960

Budget variance = $68820 - $69960 = - $1140

Since the variance is negative, so it is unfavorable variance.

(B) Volume variance = Recovered overheads - Budgeted overheads

Given: Budgeted overheads = $68820

We will first calculate recovered overheads as below:

Recovered overheads = Standard rate / pre determined overhead rate per hour * Standard hours for actual output.

Recovered overheads = $18.60 * 4000 = $74400

Now, Volume variance = Recovered overheads - Budgeted overheads

Volume variance = $74400 - $68820 = $5580

Since the variance is positive, so it is a favorable variance.