Standard Corporation uses a standard cost system.The following information was provided for the period that just ended: $\begin{array}{ll}
\text { Standard time per completed unit } & 3 \mathrm{hrs} \
\text { Actual total factory overhead } & \$ 108,000 \
\text { Fixed factory overhead } & \$ 60,000 \
\text { Standard fixed factory overhead rate } & \$ 2.00 \text { per labor hour }\
\text { Standard variable factory overhead rate } & \$ 1.50 \text { per labor hour } \
\text { Normal capacity } & 30,000 \text { hours } \
\text { Plant operated during the period } & 28,000 \text { hours } \
\text { Units completed during the period } & 9,000
\end{array}$ ? The fixed factory overhead volume variance is
A) $6,000 favorable.
B) $3,000 favorable.
C) $3,000 unfavorable.
D) $6,000 unfavorable.

Question

Quizplus · Accepted Answer

The fixed factory overhead volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead. Budgeted fixed overhead is given as $60,000. Applied fixed overhead is calculated as the standard fixed overhead rate ($2.00 per labor hour) multiplied by the actual hours worked (28,000 hours), which gives $56,000. The variance is $60,000 (budgeted) - $56,000 (applied) = $4,000 unfavorable. However, the correct calculation for applied fixed overhead should consider the standard hours allowed for actual production, not the actual hours worked. The standard hours allowed is 9,000 units * 3 hours/unit = 27,000 hours. Thus, applied fixed overhead is 27,000 hours * $2.00/hour = $54,000. The variance is then $60,000 (budgeted) - $54,000 (applied) = $6,000 unfavorable.

Standard Corporation Uses a Standard Cost System ? the Fixed Factory Overhead Volume Variance Is A) $6,000

Standard Corporation Uses a Standard Cost System ? the Fixed Factory Overhead Volume Variance Is
A) $6,000