A company's flexible budget for 48,000 units of production showed variable overhead costs of $72,000 and fixed overhead costs of $64,000. The company incurred overhead costs of $122,800 while operating at a volume of 40,000 units. The total controllable cost variance is:

A) $ 1,200 favorable. B) $ 1,200 unfavorable. C) $13,200 favorable. D) $13,200 unfavorable. E) $15,200 favorable.

A) $ 1,200 favorable

Explanation:

Computation of variance

Flexible Budget Units                                                                48,000 units

Total variable costs at budget level                                       $ 72,000

Variable costs per unit = $ 72,000/ 48,000                           $ 1.50 per unit

Actual Production Units                                                              40,000 units

Total overhead costs

Variable $ 1.50 * 40,000 units                                                 $ 60,000

Fixed overhead costs                                                               $ 64,000

Total Budgeted overhead costs at 40,000 units                   $ 124,000

Actual Overhead costs                                                           $ 122,800

Variance Favorable                                                                   $     1,200              

A) $ 1,200 favorable

Explanation:

The standard variable overhead cost per unit is equal to

= Variable overhead cost at a given units/number of units

=  $72,000 /48,000 units

=  $1.5 per unit

    Controllable cost variance    

                                                                                                  $                                                                                                      

Standard cost for 40,00 units= ( $1.5 × 40,000)                 = 60,000

Actual variable overheads  (122,800 -64,000)                      58,800

Variance                                                                          1,200 favourable                  

Note that we had to deduct $64,000 fixed costs from the total overhead figure because it is uncontrollable.

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answer///supply is elastic, and demand is inelastic;