# CMA Study Group

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## FIXED OH VARIANCE-HELP REQUEST

• #### 1.  FIXED OH VARIANCE-HELP REQUEST

Posted 06-14-2022 01:40 AM
A manufacturing company uses a standard cost system that applies overhead based upon direct labor hours. The manufacturing budget for the production of 7,500 units for the month is shown below:  Direct labor (15,000 hours at \$20 per hour) \$300,000 Variable overhead 50,000 Fixed overhead 105,000
During the month, 8,000 units were produced, and the fixed overhead budget variance was \$1,000 unfavorable. Fixed overhead during the month was

7000 usd over applied
7000 us under applied
6000 usd over applied
6000 usd under applied

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TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
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• #### 2.  RE: FIXED OH VARIANCE-HELP REQUEST

Posted 06-15-2022 01:59 AM
Hi,
I think the answer will be \$ 6000 over applied.

See here the total Foh variance is given as \$1000 (u)  and total Foh var = Foh spending var +Foh Prod. Volume var.

Foh sp var = X - 105000
As we need to find out actual Foh take it as X.

Foh prod. Vol var = 105000 - 14*8000 =\$7000

Note:
SR = 105000/7500 or 112000/8000 = \$14

So actual  Foh var will be
X - 105000+7000 = 1000
Or X = 99000

Since actual Foh incurred ie, \$99000 is less than the Applied Oh or Budgeted oh ie \$105000

The diff of \$6000  is over applied.

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VIMAL RAJ CHAKKINGAL
Student
India
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• #### 3.  RE: FIXED OH VARIANCE-HELP REQUEST

Posted 06-16-2022 02:31 AM
Thank you so much Vimal.

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TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
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• #### 4.  RE: FIXED OH VARIANCE-HELP REQUEST

Posted 06-17-2022 02:36 AM
I came up with same answer but the different working.
FOH budget variance is same as FOH spending variance which is Actual-Budget=1000
Actual - 105000 = 1000
Actual = 106000
applied = (8000*14)= 112000
106000-112000=6000 Since the applied amount is more than actual the 6000 is Overapplied

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Nurangez Gulayozova
Controller
Dubai
United Arab Emirates
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• #### 5.  RE: FIXED OH VARIANCE-HELP REQUEST

Posted 06-21-2022 04:36 AM

In order to calculate the amount of overhead that was over- or under applied we need to compare the amount of overhead that was applied during the period with the actual amount of overhead incurred.

Actual overhead during the period was \$106,000. We calculate this by adding the \$1,000 unfavorable fixed overhead budget variance to the budgeted amount of overhead, which was \$105,000.

Overhead is applied using direct labor hours. The budget called for \$105,000 of fixed overhead costs and 15,000 direct labor hours. This gives a fixed overhead application rate of \$7 per direct labor hour.

During the period, the company produced 8,000 units. Therefore, the number of direct labor hours budgeted for the actual production was 8,000 × 2 direct labor hours per unit, or 16,000 direct labor hours.

Applying \$7 per direct labor hour to the 16,000 direct labor hours allowed for the actual production equals the total fixed overhead applied of \$112,000.

\$112,000 of fixed overhead applied is \$6,000 greater than the \$106,000 actual fixed overhead cost incurred for the period, so fixed overhead was overapplied by \$6,000.

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Nurangez Gulayozova
Controller
Dubai
United Arab Emirates
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