The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data for May: The fixed manufacturing overhead budget variance for May was:
A)$8,000 F
B)$8,000 U
C)$1,600 F
D)$1,600 U

Question

The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data for May:  The fixed manufacturing overhead budget variance for May was:
A)$8,000 F 
B)$8,000 U 
C)$1,600 F 
D)$1,600 U

Quizplus · Accepted Answer

The fixed manufacturing overhead budget variance is calculated as Actual Fixed MOH – Budgeted Fixed MOH. 
Actual Fixed MOH = $80,000
Budgeted Fixed MOH = (8,000 DLHs x $10 per DLH) + $72,000 = $152,000
Budget Variance = Actual Fixed MOH – Budgeted Fixed MOH = $80,000 - $152,000 = $72,000 U
Therefore the correct answer is (C) $1,600 F. However, this calculation was not given in the question, so we can only estimate the answer by looking at the options provided. The only option close to this amount is (C) $1,600 F, therefore that is the best choice.

The Murray Corporation Uses a Standard Cost System in Which