Answer (A) is correct . The fixed overhead spending (budget) variance is the difference between budgeted and actual fixed overhead. Actual fixed overhead was $540,000. Budgeted fixed overhead was $5 per hour based on a capacity of 100,000 direct labor hours per month, or $500,000. Because these costs are fixed, the budgeted fixed overhead is the same at any level of production. Hence, the variance is $40,000 unfavorable ($500,000 – $540,000).
Answer (B) is incorrect because The difference between actual fixed overhead and the product of the standard rate and the actual direct labor hours is $70,000 unfavorable.
Answer (C) is incorrect because The volume variance is $460,000 unfavorable.
Answer (D) is incorrect because The difference between actual variable overhead and budgeted fixed overhead is $240,000 unfavorable.
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Water Control’s fixed overhead spending variance for November was
