Regent,Inc.uses the following standard to produce a single unit of its product: overhead $6 (2 hrs.@ $3/hr.).The flexible budget for overhead is $100,000 plus $1 per direct labor hour.Actual data for the month show overhead costs of $150,000,and 24,000 units produced.The overhead volume variance is:
A)$10,000 favorable.
B)$12,000 favorable.
C)$4,000 unfavorable.
D)$16,000 unfavorable.
E)$36,000 unfavorable.

Question

Quizplus · Accepted Answer

The overhead volume variance is unfavorable when actual overhead costs exceed the flexible budget for overhead. In this case, the actual overhead costs are $150,000, and the flexible budget for overhead is $100,000 plus $1 per direct labor hour. The direct labor hours used to produce 24,000 units are 48,000 hours (24,000 units x 2 hours per unit). Therefore, the flexible budget for overhead is $100,000 + (48,000 hours x $1 per hour) = $148,000. The overhead volume variance is $150,000 - $148,000 = $2,000 unfavorable.