Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2.0 hrs. @ $5.00/hr.) = $10.00; overhead (2.0 hrs. @ $2.50/hr.) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced.

The fixed overhead spending variance for Megan, Inc. for the past month, to the nearest whole dollar, was:
A) $0.
B) $3,000 unfavorable.
C) $5,000 unfavorable.
D) $17,000 unfavorable.
E) $25,000 unfavorable.

Question

Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2.0 hrs. @ $5.00/hr.) = $10.00; overhead (2.0 hrs. @ $2.50/hr.) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH) . Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced.

The fixed overhead spending variance for Megan, Inc. for the past month, to the nearest whole dollar, was:

The fixed overhead spending variance for Megan, Inc. for the past month, to the nearest whole dollar, was:
A) $0.
B) $3,000 unfavorable.
C) $5,000 unfavorable.
D) $17,000 unfavorable.
E) $25,000 unfavorable.

Quizplus · Accepted Answer

The fixed overhead spending variance is calculated as the difference between actual fixed overhead and budgeted fixed overhead. The budgeted fixed overhead is $120,000, and the actual fixed overhead is $123,000. Therefore, the variance is $123,000 - $120,000 = $3,000 unfavorable.