Sydney, inc. uses flexible budgets. at normal capacity of 8,000 units, budgeted manufacturing overhead is $64,000 variable and $180,000 fixed. if sydney had actual overhead costs of $250,000 for 9,000 units produced, what is the difference between actual and budgeted costs? a.) $2,000 favorable / b.) $8,000 favorable / c.)$6,000 unfavorable / d.) $2,000 unfavorable

Amount = $2,000  favorable

Explanation:

given data

normal capacity = 8,000 units

overhead variable = $64,000

fixed =  $180,000

actual overhead costs = $250,000

produce =  9,000 units

to find out

what is the difference between actual and budgeted costs

solution

we know that in flexible budget variable costs is change in direct proportion to the activity and total fixed costs remain  unchanged.

so here Variable costs per unit as per the static budget  will be

Variable costs = Total variable costs ÷ units capacity     ..................1

put here value

Variable costs =  

Variable costs = $8 per unit.

and we know flexible budget prepare 9,000 units so Total manufacturing overhead will be

Total manufacturing overhead = actual production × overhead per unit   ...............2

put here value

Total manufacturing overhead = 9000 × $8

Total manufacturing overhead = $72,000

and

total amount of flexible budget will be here

total amount of flexible budget = manufacturing overhead + fixed costs    ....................3

put here value

Total amount of flexible budget = $72,000 + $180,000

Total amount of flexible budget = $252,000

so

Actual overhead costs is here less than flexible budget

so it is variance is favorable

and amount is

Amount = $252,000 - $250,000

Amount = $2,000  favorable

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