Benson Company, which uses a standard cost system, budgeted $600,000 of fixed overhead when 40,000 machine hours were anticipated. Other data for the period were:
Actual units produced: 10,000
Standard production time per unit: 3.9 machine hours
Fixed overhead incurred: $620,000
Actual machine hours worked: 42,000
Benson's fixed-overhead volume variance is:
A) $10,000 favorable.
B) $15,000 favorable.
C) $15,000 unfavorable.
D) $20,000 favorable.
E) $20,000 unfavorable.

Question

Quizplus · Accepted Answer

To calculate the fixed-overhead volume variance, we need to use the formula:

Fixed-overhead volume variance = (Actual machine hours - Budgeted machine hours) x Standard fixed overhead rate

The budgeted machine hours are calculated as follows:

Budgeted machine hours = Budgeted fixed overhead ÷ Budgeted fixed overhead rate
Budgeted machine hours = $600,000 ÷ 40,000 hours
Budgeted machine hours = 15 hours per unit

The actual machine hours used were 42,000, which is 10,800 more than the budgeted hours (3.9 hours per unit x 10,000 units = 39,000 hours).

So, the fixed-overhead volume variance is:

Fixed-overhead volume variance = (42,000 − 39,000) x $15 per hour
Fixed-overhead volume variance = $45,000 unfavorable

Therefore, the correct answer is C, $15,000 unfavorable.

Benson Company, Which Uses a Standard Cost System, Budgeted $600,000