The following information for the past year is available from Thinnews Co., a company that uses machine hours to apply standard factory overhead cost to outputs:$\begin{array}{lrr}
\text { Actual total factory overhead cost incurred } & \$ 24,000 \
\text { Actual fixed overhead cost incurred } & \$ 10,000 \
\text { Budgeted fixed overhead cost } & \$ 11,000 \
\text { Actual machine hours } & 5,000 \
\text { Standard machine hours allowed for the units manufactured } & 4,800 \
\text { Denominator volume-machine hours } & 5,500 \
\text { Standard variable overhead rate per machine hour } & \$ 3.00
\end{array}$Under a two-variance breakdown (decomposition) of the total factory overhead variance, the fixed overhead production volume variance, to the nearest whole dollar, is:
A) $400 favorable.
B) $600 unfavorable.
C) $1,400 favorable.
D) $1,400 unfavorable.
E) $2,000 favorable.

Question

The following information for the past year is available from Thinnews Co., a company that uses machine hours to apply standard factory overhead cost to outputs:$\begin{array}{lrr}
\text { Actual total factory overhead cost incurred } & \$ 24,000 \
\text { Actual fixed overhead cost incurred } & \$ 10,000 \
\text { Budgeted fixed overhead cost } & \$ 11,000 \
\text { Actual machine hours } & 5,000 \
\text { Standard machine hours allowed for the units manufactured } & 4,800 \
\text { Denominator volume-machine hours } & 5,500 \
\text { Standard variable overhead rate per machine hour } & \$  3.00
\end{array}$Under a two-variance breakdown (decomposition) of the total factory overhead variance, the fixed overhead production volume variance, to the nearest whole dollar, is:
A) $400 favorable.
B) $600 unfavorable.
C) $1,400 favorable.
D) $1,400 unfavorable.
E) $2,000 favorable.

Quizplus · Accepted Answer

The fixed overhead production volume variance is calculated as the difference between the budgeted fixed overhead and the fixed overhead applied based on the standard machine hours allowed for actual production. The formula is: $ \text{Fixed Overhead Production Volume Variance} = (\text{Denominator volume - Standard machine hours allowed}) \times \text{Fixed overhead rate per machine hour} $. The fixed overhead rate per machine hour is $ \frac{\$11,000}{5,500} = \$2 $ per machine hour. The variance is $ (5,500 - 4,800) \times \$2 = 700 \times \$2 = \$1,400 $ unfavorable, because the actual production volume was less than the expected volume, leading to less fixed overhead being applied than was budgeted.

The Following Information for the Past Year Is Available from Thinnews