Canel Incorporated makes a single product--an electrical motor used in many long-haul trucks. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. Data concerning the most recent year appear below:
Required:
a. Determine the fixed overhead budget variance for the year.
b. Determine the fixed overhead volume variance for the year.

Question

Canel Incorporated makes a single product--an electrical motor used in many long-haul trucks. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. Data concerning the most recent year appear below:

Required:
a. Determine the fixed overhead budget variance for the year.
b. Determine the fixed overhead volume variance for the year.

Zoriya Papaya · Accepted Answer

Final Answer :

a. Budget variance = Actual fixed overhead − Budgeted fixed overhead
= $182,965 − $163,965 = $19,000 Unfavorable
b. Fixed component of the predetermined overhead rate = $163,965/25,500 machine-hours
= $6.43 per machine-hour
Volume variance = Budgeted fixed overhead − Fixed overhead applied to work in process
= $163,965 − ($6.43 per machine-hour × 22,100 machine-hours)
= $163,965 − ($142,103)
= $21,862 Unfavorable

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