Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of standard direct labor-hours. Two direct labor-hours are required for each unit produced. The denominator activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the period; 20 percent of this cost was fixed. The 17,200 hours worked during the period resulted in production of 8,500 units. Variable manufacturing overhead cost incurred was $108,500 and fixed manufacturing overhead cost was $28,000. The fixed manufacturing overhead volume variance for the period was:
A)$750 Unfavorable
B)$2,500 Unfavorable
C)$1,500 Unfavorable
D)$1,000 Unfavorable

Question

Quizplus · Accepted Answer

The fixed manufacturing overhead volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead. The budgeted fixed overhead is 20% of $135,000, which is $27,000. The denominator activity is 9,000 units, requiring 18,000 hours (9,000 units x 2 hours/unit). The applied fixed overhead is based on the actual production of 8,500 units, requiring 17,000 hours (8,500 units x 2 hours/unit). The applied fixed overhead is $27,000 x (17,000/18,000) = $25,500. The volume variance is $27,000 - $25,500 = $1,500 Unfavorable.

Derf Corporation Uses a Standard Cost System in Which It