An outdoor barbecue grill manufacturer 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:
$\begin{array}{|l|r|}
\hline \text { Denominator Level of Activity } & 4,600 \mathrm{MHs} \
\hline \text { Fixed Overhead Cost } & \$ 50,140 \
\hline
\end{array}$
The following data pertain to operations for the most recent period:
$\begin{array}{|l|r|}
\hline \text { Actual Hours } & 5,000 \mathrm{MHs} \
\hline \text { Standard Hours Allowed for the Actual Output } & 4,743 \mathrm{MHs} \
\hline \text { Actual Total Fixed Overhead Cost } & \$ 48,960 \
\hline
\end{array}$
-What was the fixed overhead budget variance for the period,rounded to the nearest dollar?
A) $1,450 favourable.
B) $2,503 favourable.
C) $3,009 unfavourable.
D) $5,810 unfavourable.

Question

Quizplus · Accepted Answer

The fixed overhead budget variance is calculated as the difference between the actual fixed overhead cost and the budgeted fixed overhead cost. The budgeted fixed overhead cost is calculated by multiplying the fixed overhead rate by the actual hours. The fixed overhead rate is calculated by dividing the fixed overhead cost by the denominator level of activity.The fixed overhead rate is $50,140 / 4,600 MHs = $10.90 per MH. The budgeted fixed overhead cost is $10.90 per MH x 5,000 MHs = $54,500. The fixed overhead budget variance is $48,960 - $54,500 = $5,540 favourable.

An Outdoor Barbecue Grill Manufacturer Has a Standard Costing System