Donellan Company has a standard and flexible budgeting system and uses a two-variance analysis of factory overhead. Selected data for the February production activity follows: Budgeted fixed factory overhead costs $ 70,000 Actual factory overhead incurred $250,000 Variable factory overhead rate per direct labor hour $      7 Standard direct labor hours 25,000 Actual direct labor hours 26,000 The flexible-budget variance for February is: a. $5,000 favorable. b. $5,000 unfavorable. c. $2,000 favorable. d. $2,000 unfavorable. Solution Answer is (B) $5000 unfavourable .

1. Donellan Company has a standard and flexible budgeting system and uses a two-variance
analysis of factory overhead. Selected data for the February production activity follows:
Budgeted fixed factory overhead costs
$ 70,000
Actual factory overhead incurred
$250,000
Variable factory overhead rate per direct labor hour
$Â Â Â Â Â Â 7
Standard direct labor hours
25,000
Actual direct labor hours
26,000
The flexible-budget variance for February is:
a.
$5,000 favorable.
b.
$5,000 unfavorable.
c.
$2,000 favorable.
d.
$2,000 unfavorable.
Budgeted fixed factory overhead costs $ 70,000
Actual factory overhead incurred $250,000
Variable factory overhead rate per direct labor hour $Â Â Â Â Â Â 7
Standard direct labor hours 25,000

2. Actual direct labor hours 26,000
Solution
Answer is (B) $5000 unfavourable
Overhead Rate Varience = Actual Hour X (Standard Rate - Actual Rate)
=Actual Hour x Standard Rate - Actual Hour x Actual Rate
= 182000 - 180000
Overhead Rate Varience =2000 (F)
Overhead Volume Varience = Standard Rate x Standard Hour - Actual hour x Standard Rate
=25000 x 7 - 26000 x 7
Overhead Volume Varience = 7000 (U)
Flexible Budget Varience = 2000 (F) + 7000 (U) = 5000 (U)