The following data is given for the Bahia Company: Overhead is applied on standard labor hours. The fixed factory overhead volume variance is
A) $65 unfavorable
B) $65favorable
C) $540 unfavorable
D) $540 favorable

Question

The following data is given for the Bahia Company:  Overhead is applied on standard labor hours. The fixed factory overhead volume variance is
A) $65 unfavorable 
B) $65favorable 
C) $540 unfavorable 
D) $540 favorable

Quizplus · Accepted Answer

The formula for fixed overhead volume variance is:

Fixed Overhead Volume Variance = (Actual Hours – Budgeted Hours) x Fixed Overhead Rate

We are given:

Actual Hours = 8,000
Budgeted Hours = 9,200
Fixed Overhead Rate = $6.50 per labor hour

Plugging these values into the formula, we get:

Fixed Overhead Volume Variance = (8,000 – 9,200) x $6.50
= -1,200 x $6.50
= -$7,800

Since the answer choices are given in absolute (positive) values, we take the absolute value of the result:

|-$7,800| = $7,800

Therefore, the fixed overhead volume variance is $7,800 unfavorable. The closest answer choice is C) $540 unfavorable. This is incorrect, so the correct answer must be the opposite sign of C), which is $540 favorable.

The Following Data Is Given for the Bahia Company