Question

Neptune Inc. uses a standard cost system and has the following information for the most recent month, April:

Actual direct labor hours (DLHs) worked		17,000
Standard DLHs allowed for good output produced this period		18,000
Actual total factory overhead costs incurred	$	45,400
Budgeted fixed factory overhead costs	$	10,800
Denominator activity level, in direct labor hours (DLHs)		15,000
Total factory overhead application rate per standard DLH	$	2.70

The fixed overhead production volume variance in April for Neptune, Inc., to the nearest whole dollar, was:

Multiple Choice

$3,200 favorable.

$940 U

$2,160 F

$1,040 F

$1,980 F

Answer 1

Fixed overhead production volume variance	Budgeted fixed overhead -Standard fixed overhead applied to production
Step 1: Calculation of Budgeted fixed overheads
Budgeted fixed overheads	10800
Step 2: Calculation of Standard fixed overhead applied to production
Standard fixed overhead applied to production	Budgeted fixed overheads rate per direct labor hour*Standard Direct labor hours
Standard fixed overhead applied to production	(10800/15000)*18000
Standard fixed overhead applied to production	12960
Fixed overhead production volume variance	Budgeted fixed overhead -Standard fixed overhead applied to production
Fixed overhead production volume variance	10800-12960
Fixed overhead production volume variance	-2160
Fixed overhead production volume variance	2160 Favourable
Therefore, the right answer is option (c ) 2160 F