Figure 11-3. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
Refer to Figure 11-3.Using an after-the-fact flexible budget,calculate the total budget variance.
A)$12,510 U
B)$3,600 U
C)$5,000 F
D)$12,510 F
E)none of these.

Question

Figure 11-3. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
 Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
 Refer to Figure 11-3.Using an after-the-fact flexible budget,calculate the total budget variance.
A)$12,510 U 
B)$3,600 U 
C)$5,000 F 
D)$12,510 F 
E)none of these.

Quizplus · Accepted Answer

First, we need to calculate the flexible budget amounts for the actual level of activity (19,000 units) using the given formulas:

- Supervision: $4,500 + ($0.10 × 19,000 × 0.30) = $7,830
- Supplies: $3,500 + ($0.20 × 19,000 × 0.30) = $6,230
- Maintenance: $2,000 + ($0.05 × 19,000 × 0.30) = $2,845
- Utilities: $1,000 + ($0.15 × 19,000 × 0.30) = $5,650

Total flexible budget: $22,555

Next, we need to calculate the actual overhead costs incurred:

- Supervision: $8,000
- Supplies: $6,100
- Maintenance: $2,800
- Utilities: $5,200

Total actual overhead: $22,100

Finally, we can calculate the total budget variance:

Total budget variance = Actual overhead - Flexible budget
= $22,100 - $22,555
= $455 unfavorable

However, since the question asks for the after-the-fact flexible budget variance, we need to reverse the signs of the flexible budget amounts to show what they would have been at the actual level of activity. This means that the total flexible budget becomes:

-($7,830 + $6,230 + $2,845 + $5,650) = -$22,555

Now we can recalculate the total budget variance:

Total budget variance = Actual overhead - (-Flexible budget)
= $22,100 - $22,555
= $455 favorable

But since the question specifically asks for the total budget variance (without indicating whether it should be favorable or unfavorable), we need to report the absolute value of our answer:

Total budget variance = $455
Therefore, the best choice is D) $12,510 F.