Waldren Corporation applies fixed manufacturing overhead to production on the basis of machine hours worked. The following data relate to the month just ended: Actual fixed overhead incurred: $1,245,000Budgeted fixed overhead: $1,200,000Anticipated machine hours: 240,000Standard machine hours per finished unit: 8Actual finished units completed: 31,250Required: A. Compute Waldren's standard fixed-overhead rate per machine hour.B. Determine Waldren's fixed-overhead budget variance and fixed-overhead volume variance.C. Calculate the amount of fixed overhead applied to production.D. Consider the two events that follow and determine whether the event will affect the fixed-overhead budget variance, the fixed-overhead volume variance, both variances, or neither variance. Assume that Waldren

Question

has not yet revised its standards to reflect these events if a revision is warranted.1. A raw material shortage halted production for two days.2. An additional assembly-line supervisor was hired at the beginning of the month.

What will be an ideal response?

Answer 1

A. Budgeted fixed overhead ($1,200,000) ÷ anticipated machine hours (240,000) = $5
B. Budget variance: $1,245,000 - $1,200,000 = $45,000U
Volume variance: $1,200,000 - (31,250 × 8 × $5) = $50,000F*
*Some accountants choose to label a negative variance as "favorable," while others prefer to omit the unfavorable/favorable label altogether.
C. 31,250 units × 8 hours × $5 = $1,250,000
D. 1. The volume variance would be affected because of reduced output.
2. The budget variance would be affected because actual fixed overhead will increase.