Dori Castings is a job order shop that uses a standard cost system to account for its production costs. Manufacturing overhead costs are applied to production on the basis of direct labour hours.
-Dori's choice of a production volume as a denominator for calculating its predetermined overhead rate will have NO effect on which of the following?
A) The fixed portion of this rate, which is used for applying costs to production.
B) The variable portion of this rate, which is used for applying costs to production.
C) The fixed overhead budget variance.
D) The fixed overhead volume variance.

Question

Quizplus · Accepted Answer

The choice of production volume as a denominator for calculating the predetermined overhead rate does not affect the fixed overhead budget variance. This variance measures the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs, which is independent of the production volume chosen for calculating the rate.

Dori Castings Is a Job Order Shop That Uses a Standard