Nexus Industries uses a standard costing system to apply manufacturing costs to its production process. In May, Nexus anticipated producing 2700 units with fixed manufacturing overhead costs allocated at $8.40 per direct labor hour with a standard of 2.5 direct labor hours per unit. In May, actual production was 3400 units and actual fixed manufacturing overhead costs were $23,000. What was Nexus' fixed manufacturing overhead volume variance in May?
A)$33,700 favorable
B)$33,700 unfavorable
C)$14,700 favorable
D)$14,700 unfavorable

Question

Quizplus · Accepted Answer

The fixed manufacturing overhead volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead. Budgeted fixed overhead is based on the standard cost, which is $8.40 per direct labor hour for 2.5 hours per unit for the anticipated production of 2700 units, totaling $56,700. The applied fixed overhead is based on the actual production, which is 3400 units at the same rate and hours, totaling $71,400. The variance is $71,400 - $56,700 = $14,700 favorable, as more overhead was applied than budgeted due to higher production.

Nexus Industries Uses a Standard Costing System to Apply Manufacturing