Factory Overhead Flexible Budget and Variance Analyses Lopez&Co. uses flexible budgets for cost control. During March, Lopez spent 2,850 machine hours to produce 10,800 units and incurred $13,000 in total factory overhead, of which $4,500 was for fixed factory overhead.
The master budget for the year called for production of 150,000 units using 37,500 machine hours and a total factory overhead of $180,000. The total fixed factory overhead in the annual budget was $60,000.
Required Compute the following for March:
1. Flexible budget for total overhead based on output (i.e., units produced).
2. Factory overhead flexible-budget variance.
3. All variances, including:
a. Variable and fixed overhead spending variances.
b. Variable overhead efficiency variance.
c. Fixed overhead production-volume variance.
4. Reconcile your answers in Requirements 2 and 3 above.
5. What recommendation do you have regarding the manner in which the fixed-overhead application rate is determined?
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