Zotta Enterprises uses standard costing and applies manufacturing overhead cost to products on the basis of standard direct labor-hours (DLHs). Budgeted and actual data relating to manufacturing overhead for last year appear below: The volume variance was:
A) $5,640 U
B) $5,640 F
C) $752 U
D) $752 F

Question

Zotta Enterprises uses standard costing and applies manufacturing overhead cost to products on the basis of standard direct labor-hours (DLHs). Budgeted and actual data relating to manufacturing overhead for last year appear below:  The volume variance was:
A) $5,640 U 
B) $5,640 F 
C) $752 U 
D) $752 F

Quizplus · Accepted Answer

Budget variance = Actual fixed overhead − Budgeted fixed overhead
$1,300 U = $38,900 − Budgeted fixed overhead
Budgeted fixed overhead = $38,900 − $1,300
Budgeted fixed overhead = $37,600
Fixed component of the predetermined overhead rate = $37,600 ÷ 20,000 DLHs = $1.88 per DLH
Fixed manufacturing overhead cost applied = $1.88 per DLH × 1.2 DLHs per unit × 17,000 units = $38,352
Volume variance = Budgeted fixed overhead − Fixed overhead applied to work in process
= $37,600 − $38,352 = $752 F

Zotta Enterprises Uses Standard Costing and Applies Manufacturing Overhead Cost