Dapice Incorporated makes a single product--a critical part used in commercial airline seats.The company has a standard cost system in which it applies overhead to this product based on the standard labor-hours allowed for the actual output of the period.Data concerning the most recent year appear below: The fixed overhead volume variance is:
A)$5,121 U
B)$5,121 F
C)$21,121 F
D)$21,121 U

Question

Dapice Incorporated makes a single product--a critical part used in commercial airline seats.The company has a standard cost system in which it applies overhead to this product based on the standard labor-hours allowed for the actual output of the period.Data concerning the most recent year appear below:  The fixed overhead volume variance is:
A)$5,121 U 
B)$5,121 F 
C)$21,121 F 
D)$21,121 U

Quizplus · Accepted Answer

The fixed overhead volume variance measures the difference between the budgeted fixed overhead costs and the actual fixed overhead costs incurred during the period. It can be calculated as follows:

Fixed overhead volume variance = (Budgeted fixed overhead rate × Budgeted standard labor-hours) - Actual fixed overhead costs

In this case, the budgeted fixed overhead rate is $50, and the budgeted standard labor-hours are 22,000. Therefore, the budgeted fixed overhead costs are:

Budgeted fixed overhead costs = Budgeted fixed overhead rate × Budgeted standard labor-hours
= $50 × 22,000
= $1,100,000

The actual fixed overhead costs incurred during the period were $1,105,121. Therefore, the fixed overhead volume variance is:

Fixed overhead volume variance = ($1,100,000) - ($1,105,121)
= $5,121 F

Therefore, the correct answer is B) $5,121 F. Fixed component of the predetermined overhead rate = $76,815/13,500 labor-hours
= $5.69 per labor-hour
Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
= $76,815 - ($5.69 per labor-hour × 14,400 labor-hours)
= $76,815 - ($81,936)
= $5,121 F
or
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours - Standard hours allowed for the actual output)
= $5.69 per labor-hour x (13,500 labor-hours - 14,400 labor-hours)
= $5.69 per labor-hour x (13,500 labor-hours - 14,400 labor-hours)
= $5.69 per labor-hour x (-900 hours)
= $5,121 F

Dapice Incorporated Makes a Single Product--A Critical Part Used in Commercial