Question

Fixed manufacturing overhead was budgeted at $200,000, and 25,000 direct labor hours were budgeted. If the fixed overhead volume variance was $8,000 favorable and the fixed overhead spending variance was $6,000 unfavorable, fixed manufacturing overhead applied must be a.$194,000. b.$202,000. c.$208,000. d.$206,000.

Answer 1

Answer:

Fixed overhead application rate

= Budgeted fixed overhead

   Budgeted direct labour hours

= $200,000

    25,000 hours

= $8 per diect labour hour

Fixed overhead volume variance

= (Standard hours - Budgeted hours) x Fixed overhead application rate

$8,000 = (SH - 25,000) x $8

$8,000 = 8SH - 200,000

$8,000 + $200,000 = 8SH

$208,000  = 8SH

SH = $208,000/8

SH = 26,000 hours

Fixed manufacturing overhead application rate

= 26,000 hours x $8

= $208,000

The correct answer is C

Explanation:

In this case, we need to calculate the fixed overhead application rate, which is the ratio of budgeted fixed overhead to budgeted direct labour hours.

Then we will determine the standard hours from fixed overhead volume variance. Since budgeted hours and fixed overhead volume variance have been given, we need to make standard hours the subject of the formula.

Finally, we will calculate the fixed overhead applied, which is the product of fixed overhead application rate and standard hours.