The Ferris Company applies manufacturing overhead costs to products on the basis of direct labour hours. The standard cost card shows that 3 direct labour hours are required per unit of product. For August, the company budgeted to work 90,000 direct labour hours and to incur the following total manufacturing overhead costs:
$\begin{array}{l|r|}
\hline \text { Total Variable Overhead Costs } & \$ 99,000 \
\hline \text { Total Fixed Overhead Costs } & \$ 118,000 \
\hline
\end{array}$
During August, the company completed 28,000 units of product, worked 86,000 direct labour hours, and incurred the following total manufacturing overhead costs:
$\begin{array}{|l|r|}
\hline \text { Total Variable Overhead Costs } & \$ 98,900 \
\hline \text { Total Fixed Overhead Costs } & \$ 115,300 \
\hline
\end{array}$
The denominator activity used for the predetermined overhead rate was 90,000 direct labour hours.
-For August,what was the fixed overhead budget variance?
A) $4,420 favourable.
B) $4,420 unfavourable.
C) $3,500 favourable.
D) $3,500 unfavourable.

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. The budgeted fixed overhead costs were $118,000, and the actual fixed overhead costs were $115,300. Therefore, the fixed overhead budget variance is $118,000 - $115,300 = $2,700 favorable, not $3,500 as initially stated. My mistake in the calculation; the correct variance is indeed $2,700 favorable, not an option provided.

The Ferris Company Applies Manufacturing Overhead Costs to Products on the Basis