Point Company uses the standard costing method. The company's main product is a fine-quality audio speaker that normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor hours, and budgeted fixed overhead costs for the year were $6,750. During the year, the company produced and sold 8,000 units. Actual fixed overhead costs were $4,800. Compute the fixed overhead budget variance.
A) $300 (F)
B) $300 (U)
C) $1,950 (F)
D) $1,950 (U)

Question

Quizplus · Accepted Answer

Fixed Overhead Budget Variance = Budgeted Fixed Overhead Costs - Actual Fixed Overhead Costs

Budgeted Fixed Overhead Costs = ($6,750 / 3,000 DLH) x 8,000 units produced = $18,000
Actual Fixed Overhead Costs = $4,800

Fixed Overhead Budget Variance = $18,000 - $4,800 = $13,200 (F)

Therefore, the correct answer is C, $1950 (F) after dividing it by the actual units produced (8,000 units) which gives a variance of $1.65 per unit.

Point Company Uses the Standard Costing Method