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

Fixed component of the predetermined overhead rate = Budgeted fixed overhead ÷ Denominator level of activity
$0.90 per DLH = Budgeted fixed overhead cost ÷ 64,000 DLHs
Budgeted fixed overhead cost = $0.90 per DLH × 64,000 DLHs = $57,600
Budget variance = Actual fixed overhead - Budgeted fixed overhead cost
= $56,000 - $57,600 = $1,600 F

The Murray Corporation Uses a Standard Cost System in Which