Armstrong Products Armstrong Products applies fixed overhead at a rate of $3 per direct labor hour. Each unit produced is expected to take 2 direct labor hours. Armstrong expected production in the current year to be 10,000 units but 9,000 units were actually produced. Actual direct labor hours were 19,000 and actual fixed overhead costs were $62,000.
Refer to the Armstrong Products information above. Armstrong's fixed overhead volume variance is:
A) $2,000.
B) $6,000.
C) $8,000.
D) $ 0.

Question

Quizplus · Accepted Answer

The fixed overhead volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead. The budgeted fixed overhead is based on expected production, and the applied fixed overhead is based on actual production. Here, the budgeted fixed overhead is $3 per direct labor hour for 10,000 units expected to take 2 hours each, totaling $60,000 (10,000 units * 2 hours/unit * $3/hour). The applied fixed overhead for the actual production of 9,000 units, which also should take 2 hours each, would be $54,000 (9,000 units * 2 hours/unit * $3/hour). The variance is $60,000 (budgeted) - $54,000 (applied) = $6,000.

Armstrong Products Armstrong Products Applies Fixed Overhead at a Rate