Question

The following information relates to Gouws Manufacturing's overhead costs for the month:

Static budget variable overhead $14,200

Static budget fixed overhead $5,600

Static budget direct labor hours 1,000 hours

Static budget number of units 5,000 units

Welty allocates manufacturing overhead to production based on standard direct labor hours.

Welty reported the following actual results for last month: actual variable overhead, $ 14,500; actual fixed overhead, $ $5,400; actual production of 4,700 units at 0.22 direct labor hours per unit. The standard direct labor time is 0.20 direct labor hours per unit.

Compute the fixed overhead volume variance.

Answer 1

Fixed Overhead Volume Variance = Standard Rate per unit * (Budgeted Production – Actual Production)

Standard Fixed Overhead per unit = Budgeted Overhead
                                                            Budgeted Production

Standard Fixed Overhead per unit = $5600
  5000 units

Standard Fixed Overhead per unit = $ 1.12/ unit

Hence,

Fixed Overhead Volume Variance = $1.12 per unit * (5000 – 4700)

Fixed Overhead Volume Variance =$ 336 (A)