The standard fixed factory overhead rate is based on 100% capacity of 120,000 machine hours for Thompson Inc. The standard costs and the actual costs of factory overhead for the production of 25,000 units during March were as follows: $\begin{array}{ll}
\$ 950,000 & \text { Actual: Factory overhead } \
900,000 & \text { Standard: } 100,000 \text { hours at } \$ 9.00
\end{array}$
If there was a $60,000 unfavorable volume variance for March, what is the standard fixed factory overhead cost rate?
A) $3.00
B) $2.50
C) $6.67
D) $0.60

Question

The standard fixed factory overhead rate is based on 100% capacity of 120,000 machine hours for Thompson Inc. The standard costs and the actual costs of factory overhead for the production of 25,000 units during March were as follows: $\begin{array}{ll}
\$ 950,000 & \text { Actual: Factory overhead } \
900,000 & \text { Standard: } 100,000 \text { hours at } \$ 9.00
\end{array}$
 If there was a $60,000 unfavorable volume variance for March, what is the standard fixed factory overhead cost rate?
A) $3.00
B) $2.50
C) $6.67
D) $0.60

Quizplus · Accepted Answer

The volume variance is calculated as (Standard hours at 100% capacity - Actual hours) x Standard fixed overhead rate. Given a $60,000 unfavorable variance and 100,000 standard hours, the rate is $60,000 / (120,000 - 100,000) = $3.00.