Frekko Company collected the following information:
$\begin{array}{lr}
\text { Standard costs per unit: }\
\text { Variable overhead } & 4 \text { machine hours @\$6 per machine hour } \
\text { Fixed overhead } & 4 \text { machine hours } @ \$ 10 \text { per machine hour }
\end{array}$

$\begin{array}{l}
\text { Actual output }&20,000 \text { units } \
\text { Denominator (normal capacity) output } & 21,000 \text { units } \
\text { Actual machine hours } & 79,000 \text { machine hours } \
\text { Actual variable overhead cost } & \$ 540,000 \
\text { Actual fixed overhead cost } & \$ 810,000
\end{array}$
-Refer to the figure.Using the two variance method,what is the volume variance?
A)$6,000 (F)
B)$6,000 (U)
C)$40,000 (F)
D)$40,000 (U)

Question

Frekko Company collected the following information:
$\begin{array}{lr}
\text { Standard costs per unit: }\
\text { Variable overhead } & 4 \text { machine hours @\$6 per machine hour } \
\text { Fixed overhead } & 4 \text { machine hours } @ \$ 10 \text { per machine hour }
\end{array}$

$\begin{array}{l}
\text { Actual output }&20,000 \text { units } \
\text { Denominator (normal capacity) output } & 21,000 \text { units } \
\text { Actual machine hours } & 79,000 \text { machine hours } \
\text { Actual variable overhead cost } & \$ 540,000 \
\text { Actual fixed overhead cost } & \$ 810,000
\end{array}$
-Refer to the figure.Using the two variance method,what is the volume variance?
A)$6,000 (F)
B)$6,000 (U)
C)$40,000 (F)
D)$40,000 (U)

Quizplus · Accepted Answer

The volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead. The budgeted fixed overhead is based on the denominator (normal capacity) output, which is 21,000 units at 4 machine hours per unit at $10 per machine hour, totaling $840,000 (21,000 units * 4 hours/unit * $10/hour). The applied fixed overhead is based on the actual output, which is 20,000 units at 4 machine hours per unit at $10 per machine hour, totaling $800,000 (20,000 units * 4 hours/unit * $10/hour). The volume variance is $840,000 (budgeted) - $800,000 (applied) = $40,000 unfavorable, because the company applied less fixed overhead than budgeted due to producing fewer units than the normal capacity.

Frekko Company Collected the Following Information -Refer to the Figure