Colina Production Company uses a standard costing system. The following information pertains to 2016. Direct labor hours is the driver used to assign overhead costs to products. Actual production 5,500 units
Actual factory overhead costs ($16,500 is fixed) $40,125
Actual direct labor costs (11,250 hours) $131,625 Standard direct labor for 5,500 units:
Standard hours allowed 11,000 hours
Labor rate $12.00
The factory overhead rate is based on an activity level of 10,000 direct labor hours. Standard cost data for 5,000 units is as follows:
Variable factory overhead $22,500
Fixed factory overhead 13,500
Total factory overhead $36,000
What is the fixed overhead volume variance for Colina Production Company?
A) $3,600 (F)
B) $1,350 (F)
C) $4,125 (U)
D) $1,350 (U)

Question

Quizplus · Accepted Answer

The fixed overhead volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead based on standard hours allowed. The budgeted fixed overhead is $13,500, and the standard hours allowed for 5,500 units is 11,000 hours. The overhead rate is $13,500 / 10,000 hours = $1.35 per hour. Applied fixed overhead is 11,000 hours * $1.35 = $14,850. The variance is $14,850 - $13,500 = $1,350 (Favorable).

Colina Production Company Uses a Standard Costing System