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4 December, 20:23

A company's flexible budget for the range of 35,000 units to 45,000 units of production showed variable overhead costs of $2 per unit and fixed overhead costs of $72,000. The company incurred total overhead costs of $148,800 while operating at a volume of 40,000 units. The total controllable cost variance is:

a. $6,800 favorable.

b. $6,800 unfavorable.

c. $3,200 favorable.

d. $3,200 unfavorable.

e. $10,000 favorable.

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  1. 4 December, 20:27
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    c. $3,200 favorable.

    Explanation:

    We know that

    Total controllable cost variance = Budgeted overhead cost - actual overhead cost

    where,

    Budgeted overhead cost = Variable overhead + Fixed overhead

    where,

    Variable overhead = 40,000 units * $2 = $80,000

    And, the fixed overhead = $72,000

    So, the budgeted overhead = $152,000

    And, the actual one is $148,800

    So, the total controllable cost variance would be

    = $152,000 - $148,800

    = $3,200 favorable
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