Question

In March, Leona Company made 4,500 units of its product. Leona uses a standard cost system and applies overhead cost based on direct labor hours.  

Standard:
DLH per unit	2.50
Variable overhead per DLH	$1.75
Fixed overhead per DLH	$3.10
Budgeted variable overhead	$21,875
Budgeted fixed overhead	$38,750
Actual:
Direct labor hours	10,000
Variable overhead	$26,250
Fixed overhead	$38,000

Refer to Leona Company. Using the four-variance approach, what is the fixed overhead volume variance?

	a.	$3,875.00 U
	b.	$3,875.00 F
	c.	$3,125.00 F
	d.	$6,063.00 U

Answer 1

Answer : a. 3875.00 U

Calculated as

Fixed overhead volume variance = Actual Output x Budgeted fixed overhead per unit - Standard Output x Budgeted fixed

overhead per unit

Direct labor hours = Budgeted fixed overhead/Overhead per hour = $38750/3.10

= 12500 hours

Budgeted output = Direct labor hours /Labor hour per unit = 12500/2.50 = 5000 Units

Budgeted fixed overhead per unit = $38750/5000 = $7.75 per unit

Fixed overhead volume variance = Actual Output x Budgeted fixed overhead per unit - Standard Output x Budgeted fixed

= 4500 x 7.75 - 5000 x 7.75

= 3875 Unfavorable

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