An outdoor barbecue grill manufacturer has a standard costing system based on machine hours (MHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
$\begin{array}{|l|r|}
\hline \text { Denominator Level of Activity } & 4,600 \mathrm{MHs} \
\hline \text { Fixed Overhead Cost } & \$ 50,140 \
\hline
\end{array}$
The following data pertain to operations for the most recent period:
$\begin{array}{|l|r|}
\hline \text { Actual Hours } & 5,000 \mathrm{MHs} \
\hline \text { Standard Hours Allowed for the Actual Output } & 4,743 \mathrm{MHs} \
\hline \text { Actual Total Fixed Overhead Cost } & \$ 48,960 \
\hline
\end{array}$
-What was the fixed overhead volume variance for the period,rounded to the nearest dollar?
A) $1,468 favourable.
B) $1,559 favourable.
C) $2,801 unfavourable.
D) $4,360 favourable.

Question

Quizplus · Accepted Answer

The fixed overhead volume variance is calculated as the difference between the budgeted fixed overhead and the fixed overhead applied to production, based on the standard hours allowed for the actual output. The budgeted fixed overhead is given as $50,140. The fixed overhead rate per machine hour (MH) is calculated by dividing the total fixed overhead cost by the denominator level of activity: $50,140 / 4,600 MHs = $10.90 per MH. The fixed overhead applied to production is the standard hours allowed for the actual output multiplied by the fixed overhead rate: 4,743 MHs * $10.90 = $51,699. The variance is then $50,140 (budgeted) - $51,699 (applied) = -$1,559, which is a favourable variance because the applied fixed overhead is greater than the budgeted amount.

An Outdoor Barbecue Grill Manufacturer Has a Standard Costing System