Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as the activity base for overhead.The following information relates to vase production at Nitrol for last year: The standard machine-hours per vase is 1.25.Last year Nitrol produced 84,000 vases. What was Nitrol's fixed manufacturing overhead volume variance for last year?
A)$2,500 Favorable
B)$7,500 Favorable
C)$12,500 Favorable
D)$40,000 Unfavorable

Question

Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as the activity base for overhead.The following information relates to vase production at Nitrol for last year:  The standard machine-hours per vase is 1.25.Last year Nitrol produced 84,000 vases. What was Nitrol's fixed manufacturing overhead volume variance for last year?
A)$2,500 Favorable 
B)$7,500 Favorable 
C)$12,500 Favorable 
D)$40,000 Unfavorable

Quizplus · Accepted Answer

Fixed component of the predetermined overhead rate = $250,000 ÷ 100,000 hours = $2.50 per hour
Standard hours allowed for the actual output = 1.25 hours per unit × 84,000 units = 105,000 hours
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours - Standard hours allowed for the actual output)
= $2.50 per hour × (100,000 hours - 105,000 hours)
= $2.50 per hour × (-5,000 hours)
= $12,500 F

Nitrol Corporation Manufactures Brass Vases Using a Standard Cost System