Question

Lenci Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During May, the company budgeted for 5,100 units, but its actual level of activity was 5,050 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for May:
Data used in budgeting:
Fixed element/month Variable element/unit
Revenue - $ 39.60
Direct labor $ 0 $ 5.50
Direct materials 0 15.70
Manufacturing overhead 41,500 1.30
Selling and administrative expenses 22,700 0.20
Total expenses $ 64,200 $ 22.70

Actual results for May:
Revenue $ 197,810
Direct labor $ 28,565
Direct materials $ 80,265
Manufacturing overhead $ 47,905
Selling and administrative expenses $ 22,680

The revenue variance for May would be closest to:

Answer 1

Solution:

Manufacturing overhead expense volatility will be determined by subtracting the overhead cost of output from the total overhead cost of production according to the adjustable budget.

(Manufacturing overhead cost as per flexible budget) =

(Actual units x Variable manufacturing overhead per unit +Fixed manufacturing overhead  )

= (5,050 x $1.30)+ $41,500 = $48,065  

Actual manufacturing overhead cost = $47,905

Therefore, Manufacturing overhead spending variance

= $48,065 - $47,905 = $160

The deviation is positive as the real expense is smaller than the adjustable cost of the program.