Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labour-hours. Each unit requires two standard hours of labour for completion. The denominator activity for the year was based on budgeted production of 200,000 units. Total overhead was budgeted at £900,000 for the year, and the fixed overhead rate was £3.00 per unit. The actual data pertaining to the manufacturing overhead for the year are presented below:$$\begin{array} { l l }
\text { Actual production } & 198,000 \text { units } \
\text { Actual direct labour-hours } & 440,000 \text { direct labour-hours } \
\text { Actual variable overhead } & £ 352,000 \
\text { Actual fixed overhead } & £ 575,000
\end{array}$$
-Franklin's fixed overhead budget variance for the year is

A)£19,000 favourable.
B)£25,000 favourable.
C)£25,000 unfavourable.
D)£19,000 unfavourable.

Question

Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labour-hours. Each unit requires two standard hours of labour for completion. The denominator activity for the year was based on budgeted production of 200,000 units. Total overhead was budgeted at £900,000 for the year, and the fixed overhead rate was £3.00 per unit. The actual data pertaining to the manufacturing overhead for the year are presented below:$$\begin{array} { l l } 
\text { Actual production } & 198,000 \text { units } \
\text { Actual direct labour-hours } & 440,000 \text { direct labour-hours } \
\text { Actual variable overhead } & £ 352,000 \
\text { Actual fixed overhead } & £ 575,000
\end{array}$$
-Franklin's fixed overhead budget variance for the year is

A)£19,000 favourable.
B)£25,000 favourable.
C)£25,000 unfavourable.
D)£19,000 unfavourable.

Quizplus · Accepted Answer

The fixed overhead budget variance is calculated as the difference between the actual fixed overhead and the budgeted fixed overhead. The budgeted fixed overhead is calculated as the fixed overhead rate per unit multiplied by the budgeted production units. Here, it is £3.00 per unit * 200,000 units = £600,000. The actual fixed overhead is £575,000. Therefore, the variance is £600,000 - £575,000 = £25,000 favourable.

Franklin Glass Works Uses a Standard Cost System in Which