Asked by Albin Mathew on Jun 20, 2024
Verified
The fixed factory overhead volume variance is
A) $73,250 unfavorable
B) $73,250 favorable
C) $59,400 favorable
D) $59,400 unfavorable
Fixed Factory Overhead Volume Variance
The difference between the budgeted and actual fixed overhead allocated to production, based on changes in the volume of goods produced.
Standard Labor Hours
The predetermined amount of time expected to be required to complete a unit of production under normal conditions.
Overhead
Indirect costs or expenses related to the production process or operational activities of a business that are not directly tied to a specific product or service.
- Be proficient in understanding and calculating variances associated with factory overhead, including aspects like controllable, volume, and the fixed/variable contrasts.
Verified Answer
Fixed factory overhead volume variance = (Budgeted fixed factory overhead / Budgeted standard labor hours) x (Actual standard labor hours - Budgeted standard labor hours)
Given data:
Budgeted fixed factory overhead = $594,000
Budgeted standard labor hours = 99,000
Actual standard labor hours = 93,600
Therefore,
Fixed factory overhead volume variance = ($594,000 / 99,000) x (93,600 - 99,000) = $(3,600) x (-5,400) = $19,4400 unfavorable.
This variance represents the excess of fixed factory overhead costs incurred over the budgeted amount due to lower production levels than anticipated. Therefore, the correct choice is C, which is the closest option to the calculated answer. Neither A nor B correctly represents the actual unfavorable variance amount, while D is the opposite of the actual variance direction (it's unfavorable, not favorable).
Learning Objectives
- Be proficient in understanding and calculating variances associated with factory overhead, including aspects like controllable, volume, and the fixed/variable contrasts.
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