Carl Jones Company's master budget for the year just completed was based on 100% capacity and included 50,000 machine hours and $300,000 total factory overhead. (That is, the denominator volume, for purposes of calculating the fixed overhead application rate, is defined as 100% capacity.) Budgeted fixed overhead at 70% factory capacity is $200,000 (and 35,000 machine hours). The company operated at 80% capacity for the year, and incurred $275,000 total factory overhead.
Required:
1. Determine the total overhead flexible-budget variance (to the nearest dollar) for the year just completed. Show calculations.
2. Determine the fixed overhead production-volume variance (to the nearest dollar) for the year just completed. Show calculations.
3. Provide a short discussion/interpretation of each of the above-two variances.
Definitions:
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