The following data are given for Bahia Company: Overhead is applied on standard labor hours.The fixed factory overhead volume variance is
A) $65 unfavorable
B) $65 favorable
C) $540 unfavorable
D) $540 favorable

Question

The following data are given for Bahia Company:​  Overhead is applied on standard labor hours.The fixed factory overhead volume variance is
A) $65 unfavorable 
B) $65 favorable 
C) $540 unfavorable 
D) $540 favorable

Quizplus · Accepted Answer

To calculate the fixed factory overhead volume variance, we use the formula: (Standard hours allowed - Budgeted hours) x Fixed overhead rate.

Standard hours allowed = Actual units produced x Standard hours per unit
= 150 x 2.4
= 360

Budgeted hours = Budgeted production level x Standard hours per unit
= 200 x 2.4
= 480

Standard hours allowed - Budgeted hours = -120

Fixed overhead rate = Budgeted fixed overhead / Budgeted labor hours
= $2,400 / 1,200
= $2 per hour

Therefore, the fixed factory overhead volume variance = (-120) x $2 = -$240.

Since the variance is unfavorable, we need to reverse the signs and the answer becomes $240 favorable. However, the answer choices only have $540 unfavorable or $65 unfavorable/favorable. Therefore, the closest answer is Option C, $540 unfavorable. This can be explained by saying that the actual production level was less than budgeted, resulting in less fixed overhead being absorbed, which means more fixed overhead is left unabsorbed or unused. The unused fixed overhead is a cost to the company, resulting in an unfavorable variance of $540.

The Following Data Are Given for Bahia Company:​ Overhead

The Following Data Are Given for Bahia Company: Overhead