Draco, Inc. has the following overhead standards:
Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
Draco's fixed-overhead budget variance is:
A) $6,000 unfavorable.
B) $7,000 unfavorable.
C) $10,000 unfavorable.
D) $12,000 unfavorable.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

The fixed overhead budget variance is calculated as the difference between the actual fixed overhead incurred and the budgeted fixed overhead. The budgeted fixed overhead is based on the planned activity of 20,000 machine hours at $10 per hour, which equals $200,000. The actual fixed overhead incurred is $210,000. Therefore, the variance is $210,000 - $200,000 = $10,000 unfavorable.

Draco, Inc. Has the Following Overhead Standards