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Wangerin Corporation applies overhead to products based on machine-hours. The denominator level of activity is 7,000 machine-hours. The budgeted fixed manufacturing overhead costs are $245,000. In April, the actual fixed manufacturing overhead costs were $249,900 and the standard machine-hours allowed for the actual output were 7,300 machine-hours. Required: a. Compute the budget variance for April. b. Compute the volume variance for April.

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Answer and Explanation:

a. The computation of the budget variance of the month of April is shown below:

= Actual fixed manufacturing overhead costs -  budgeted fixed manufacturing overhead costs

= $249,900 - $245,000

= $4,900 unfavorable

b. The volume variance is

= (Denominator machine-hours - Standard machine-hours allowed) × Budgeted fixed overhead rate

= (7,000 machine hours - 7,300 machine hours) × $245,000 ÷ 7,000 machine hours

= $10,500 favorable

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