Arca Incorporated makes a single product-a critical part used in commercial airline seats. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. Data concerning the most recent year appear below: The fixed overhead volume variance is:
A) $42,675 U
B) $57,675 U
C) $42,675 F
D) $57,675 F

Question

Arca Incorporated makes a single product-a critical part used in commercial airline seats. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. Data concerning the most recent year appear below:  The fixed overhead volume variance is:
A) $42,675 U 
B) $57,675 U 
C) $42,675 F 
D) $57,675 F

Quizplus · Accepted Answer

Fixed component of the predetermined overhead rate = $170,700/30,000 machine-hours
= $5.69 per machine-hour
Volume variance = Budgeted fixed overhead − Fixed overhead applied to work in process
= $170,700 − ($5.69 per machine-hour × 22,500 machine-hours)
= $170,700 − ($128,025)
= $42,675 U
or
Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours − Standard hours allowed for the actual output)
= $5.69 per machine-hour × (30,000 machine-hours − 22,500 machine-hours)
= $5.69 per machine-hour × (7,500 hours)
= $42,675 U

Arca Incorporated Makes a Single Product-A Critical Part Used in Commercial