Fixed Manufacturing Overhead Budget and Volume Variances
Response to the following problem:
The company spent $80,000 on fixed manufacturing overhead during the year. As of the beginning of the year, the company had budgeted to spend $76,000 on fixed manufacturing overhead and to work 2,000 direct labor hours (based on expected production of 500 units at four direct labor hours per unit). The actual number of units produced during the year was 400. Fixed manufacturing overhead is applied to production based on direct labor hours.
Compute
(1) the fixed manufacturing overhead budget variance,
(2) the fixed manufacturing overhead volume variance, and
(3) the total amount of under- or overapplied fixed manufacturing overhead.