Hogle Mfg. Co. uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: Units produced 3,100
Units sold 2,800
Machine hours required 12,800
Actual overhead costs $136,000
The fixed overhead production volume variance was:
A)$1,000 U
B)$2,500 F
C)$1,500 F
D)$5,000 U

Question

Quizplus · Accepted Answer

The fixed overhead production volume variance is calculated as the difference between the actual fixed overhead costs and the budgeted fixed overhead costs. The budgeted fixed overhead costs are calculated as the fixed overhead rate multiplied by the standard machine hours allowed for the actual production. The fixed overhead rate is calculated as the total fixed overhead costs divided by the normal production in machine hours.In this case, the fixed overhead rate is $135,000 / (3,000 units x 4 hours per unit) = $11.25 per machine hour. The budgeted fixed overhead costs are $11.25 per machine hour x 12,800 machine hours = $144,000. The actual fixed overhead costs are $136,000. Therefore, the fixed overhead production volume variance is $144,000 - $136,000 = $8,000 F.

Hogle Mfg Co