A manufacturing company has a standard costing system based on machine hours (MHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
$\begin{array}{|l|r|}
\hline \text { Denominator Level of Activity } & 6,100 \mathrm{MHs} \
\hline \text { Overhead Costs at the Denominator Activity Level: } & \
\hline \text { Variable Overhead Cost } & \$ 35,075 \
\hline \text { Fixed Overhead Cost } & \$ 77,775 \
\hline
\end{array}$
The following data pertain to operations for the most recent period:
$\begin{array}{|l|r|}
\hline \text { Actual Hours } & 6,300 \mathrm{MHs} \
\hline \text { Standard Hours Allowed for the Actual Output } & 5,994 \mathrm{MHs} \
\hline \text { Actual Total Variable Overhead Cost } & \$ 36,540 \
\hline \text { Actual Total Fixed Overhead Cost } & \$ 76,875 \
\hline
\end{array}$
-What was the fixed overhead budget variance for the period,rounded to the nearest dollar?
A) $452 favourable.
B) $452 unfavourable.
C) $900 unfavourable.
D) $900 favourable.

Question

Quizplus · Accepted Answer

The fixed overhead budget variance is calculated as the difference between the budgeted fixed overhead costs and the actual fixed overhead costs. In this case, the budgeted fixed overhead cost is $77,775 and the actual fixed overhead cost is $76,875. Therefore, the variance is $77,775 - $76,875 = $900 favourable, because the actual costs were less than the budgeted costs.

A Manufacturing Company Has a Standard Costing System Based on Machine