The following data is given for the Walker Company: $\begin{array}{ll}
\text { Budgeted production } & 1,000 \text { units } \
\text { Actual production } & 980 \text { units }\\text { Materials: }\
\text { Standard price per lb } & \$ 2.00 \
\text { Standard pounds per completed unit } & 12 \
\text { Actual pounds purchased and used in production } & 11,800 \
\text { Actual price paid for materials } & \$ 23,000\\text { Labor: }\
\text { Standard hourly labor rate } & \$ 14 \text { per hour } \
\text { Standard hours allowed per completed unit } & 4.5 \
\text { Actual labor hours worked } & 4,560 \
\text { Actual total labor costs } & \$ 62,928\\text { Overhead: }\
\text { Actual and budgeted fixed overhead }&\$27,000\\text { Standard variable overhead rate }&\$ 3.50 \text { per standard labor hour }\\text { Actual variable overhead costs }&\$15,500
\end{array}$ Overhead is applied on standard labor hours. ?
The factory overhead volume variance is:
A) $65 unfavorable.
B) $65 favorable.
C) $540 unfavorable.
D) $540 favorable.

Question

Quizplus · Accepted Answer

The factory overhead volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead based on standard hours for actual production. The standard hours for actual production (980 units x 4.5 hours/unit) is 4,410 hours. The budgeted fixed overhead is $27,000. The applied fixed overhead is based on 4,410 hours, which is less than the budgeted hours for 1,000 units (4,500 hours). The variance is (4,500 - 4,410) x (budgeted fixed overhead rate per hour), resulting in a $540 unfavorable variance.

The Following Data Is Given for the Walker Company Overhead Is Applied on Standard Labor Hours