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Cooper Corporation produces decorator wall coverings.Budgeted production is 240,000 square feet per month,and the standard direct labor requirement to make this amount is 6,000 hours.All overhead is allocated based on direct labor hours.The following information is available:

-The overhead volume variance for the month in question was:
A)$250 unfavorable.
B)$1,125 favorable.
C)$3,375 favorable.
D)$1,125 unfavorable.

Question

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Cooper Corporation produces decorator wall coverings.Budgeted production is 240,000 square feet per month,and the standard direct labor requirement to make this amount is 6,000 hours.All overhead is allocated based on direct labor hours.The following information is available:
 
-The overhead volume variance for the month in question was:
A)$250 unfavorable. 
B)$1,125 favorable. 
C)$3,375 favorable. 
D)$1,125 unfavorable.

Quizplus · Accepted Answer

The overhead volume variance is calculated as follows:

Actual Overhead Hours - Budgeted Overhead Hours

Given information: 
Actual overhead hours = 5,700 
Budgeted overhead hours = (240,000 sq ft/6,000 DLH per month) x 1.2 overhead allocation rate = 48,000 overhead hours per month

Overhead volume variance = Actual overhead hours - Budgeted overhead hours 
= 5,700 - 48,000 
= -42,300

A negative overhead volume variance means that fewer overhead hours were used than expected.

To determine if this variance is favorable or unfavorable, we need to look at how overhead is applied. In this case, overhead is allocated based on direct labor hours. If fewer overhead hours were used, it means that fewer direct labor hours were used as well. This would lead to a favorable labor efficiency variance.

Therefore, the overhead volume variance of -$42,300 is favorable. To convert this variance to a dollar amount, we multiply by the overhead allocation rate:

-$42,300 x $0.70 = -$29,610

Since this variance represents a cost savings, the answer is B) $1,125 favorable.

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