Lopez & Co. uses flexible budgets for cost control. During March, Lopez spent 2,850 machine hours to produce 10,800 units and incurred $13,000 in total factory overhead, of which $4,500 was for fixed factory overhead.

The master budget for the year called for production of 150,000 units using 37,500 machine hours and a total factory overhead of $180,000. The total fixed factory overhead in the annual budget was $60,000.

 

Actual machine hours in March								2,850
Actual units produced in March								10,800
Total factory overhead in March								$ 13,000
Budgeted production in units for the year								150,000
Budgeted machine hours for the year								37,500
Budgeted total factory overhead for the year								$ 180,000
Budgeted fixed factory overhead for the year								$ 60,000
Fixed factory overhead incurred in March								$ 4,500

Required

Compute the following for March:

1. Flexible budget for total overhead based on output (i.e., units produced).

2. Factory overhead flexible-budget variance.

3. All variances, including:

a. Variable and fixed overhead spending variances.

b. Variable overhead efficiency variance.

c. Fixed overhead production-volume variance.

4. Reconcile your answers in Requirements 2 and 3 above.

5. What recommendation do you have regarding the manner in which the fixed-overhead application rate is determined?