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13 September, 06:25

Auditory Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 12,000 Actual fixed overhead incurred: $750,000 Standard fixed overhead rate: $16 per hour Budgeted fixed overhead: $740,000 Planned level of machine-hour activity: 45,000 If Auditory estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be:

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  1. 13 September, 09:12
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    Fixed overhead variance = $18,000 favorable

    Explanation:

    Giving the following information:

    Actual units produced: 12,000

    Actual fixed overhead incurred: $750,000

    Standard fixed overhead rate: $16 per hour

    Budgeted fixed overhead: $740,000

    Planned level of machine-hour activity: 45,000

    Auditory estimates four hours to manufacture a completed unit.

    First, we need to calculate the standard fixed costs for the period:

    Allocated overhead = Estimated manufacturing overhead rate * Actual amount of allocation base

    Allocated overhead = 16 * (12,000*4) = $768,000

    Actual overhead = 750,000

    Fixed overhead variance = actual - allocated

    Fixed overhead variance = 750,000 - 768,000 = $18,000 favorable
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