Web Company uses a standard cost system that applies manufacturing overhead to units of product on the basis of machine hours.During February,the company used a denominator activity of 80,000 machine hours in computing its predetermined overhead rate.However,only 75,000 standard machine hours were allowed for the month's actual production.If the fixed overhead volume variance for February was $6,400 unfavourable,what was the total budgeted fixed overhead cost for the month?
A) $96,000.
B) $98,600.
C) $100,000.
D) $102,400.

Question

Quizplus · Accepted Answer

The fixed overhead volume variance is calculated as the difference between the budgeted fixed overhead and the fixed overhead applied based on the standard machine hours allowed for actual production. The formula for the fixed overhead volume variance is: (Denominator Activity - Standard Hours Allowed) x Fixed Overhead Rate per Machine Hour. Given that the variance is $6,400 unfavorable, this means that the actual production was less than expected, leading to less fixed overhead being applied than was budgeted for. The variance of $6,400 represents the product of the difference in machine hours (80,000 - 75,000 = 5,000 hours) and the fixed overhead rate per machine hour. Therefore, to find the total budgeted fixed overhead cost, we divide the variance by the difference in machine hours and then multiply by the denominator activity: $6,400 / 5,000 hours = $1.28 per machine hour. Then, $1.28 per machine hour * 80,000 hours = $102,400.

Web Company Uses a Standard Cost System That Applies Manufacturing