Draco, Inc. has the following overhead standards:
Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
Draco's fixed-overhead volume variance is:
A) $4,000 favorable.
B) $4,000 unfavorable.
C) $10,000 favorable.
D) $10,000 unfavorable.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

Fixed overhead is applied based on budgeted machine hours. The budgeted fixed overhead is $200,000 (4 hours x $10 per hour x 20,000 machine hours). The actual fixed overhead incurred is $210,000. The fixed-overhead volume variance is unfavorable because the actual fixed overhead incurred is greater than the budgeted fixed overhead. The unfavorable variance is $10,000 ($210,000 - $200,000).

Draco, Inc. Has the Following Overhead Standards