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Great Inc. manufactures a single product. The following data relates to January 2018: Actual Static Budget...

Great Inc. manufactures a single product. The following data relates to January 2018: Actual Static Budget Production 3,200 units 3,500 units Machine hours 22,200 hours 20,300 hours Variable overhead costs $9,560 $12,180 Fixed overhead costs $42,890 $45,675 What is the fixed overhead volume variance in January, assuming overhead is applied based on machine hours?

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Answer #1

Ans:

Fixed overhead volume variance:

Standard machine hours allowed per unit = (20,300 hours/3500 units) = 5.8 hours per unit.

Fixed overhead absorption rate = (Budgeted fixed cost/Budgeted machine hours) = $45,675/20,300 = 2.25 per machine hour.

Fixed overhead volume variance = (SH - AH)*Fixed overhead absorption rate.

SH = Standard hours required for Actual output.

SH = (Actual output)*(Standard machine hours allowd per unit)

SH = (3200 units)*(5.8 hours per unit)

SH = 18,560 machine hours.

AH = Actual hours worked for actual output = 22,200 machine hours.

Fixed overhead volume variance = (18,560 - 22,200)*2.25

Fixed overhead volume variance = $8,190 Unfavourable.

Thank you,

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