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:?Budgeted production (a)15,000units?Standard hours per unit (b)1.70machine-hours?Budgeted hours (a) × (b)25,500machine-hours?Budgeted fixed manufacturing overhead$163,965??????Actual production (a)13,000units?Standard hours per unit (b)1.70machine-hours?Standard hours allowed for the actual production (a) × (b)22,100machine-hours?Actual fixed manufacturing overhead$182,965??Actual hours23,100machine-hoursRequired:a. Determine the fixed overhead budget
variance for the year.b. Determine the fixed overhead volume variance for the year.
What will be an ideal response?
a. Budget variance = Actual fixed overhead ? Budgeted fixed overhead
= $182,965 ? $163,965 = $19,000 U
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 U
or
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours ? Standard hours allowed for the actual output)
= $6.43 per machine-hour x (25,500 machine-hours ? 22,100 machine-hours)
= $6.43 per machine-hour x (25,500 machine-hours ? 22,100 machine-hours)
= $6.43 per machine-hour x (3,400 hours)
= $21,862 U
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