G Fixed production costs for the Velvet Corporation are budgeted at $80,000, assuming 40,000 units of production. Actual sales for the period were 35,000 units, while actual production was 40,000 units. Actual fixed costs were $70,000. What is the budget variance?

Budget variance= $10,000 unfavorable

Explanation:

The fixed cost variance is the difference between the actual fixed cost and the absorbed fixed cost.

The absorbed fixed cost = POAR ×  actual production unit

               POAR =budgeted fixed cost/Budgeted production units

                         = $80,000,/  40,000

                      = $2 per unit

POAR - Predetermined overhead absorption rate

Absorbed overhead= $2 × 40,000 = $80,000

Budget Variance =  $70,000 -$80,000

                  = $10,000 unfavorable

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