The standard costs and actual costs for factory overhead for the manufacture of 2,500 units of actual production are as follows: The amount of the factory overhead volume variance is:
A) $2,000 favorable
B) $2,000 unfavorable
C) $2,500 unfavorable
D) $0

Question

The standard costs and actual costs for factory overhead for the manufacture of 2,500 units of actual production are as follows: The amount of the factory overhead volume variance is:
A) $2,000 favorable 
B) $2,000 unfavorable 
C) $2,500 unfavorable 
D) $0

Quizplus · Accepted Answer

The factory overhead volume variance is calculated as the difference between the standard hours allowed for the actual level of production and the standard hours allowed for the budgeted level of production, multiplied by the standard overhead rate per hour.

Standard hours allowed for budgeted production = 2 hours x 2,500 units = 5,000 hours
Standard hours allowed for actual production = 2.2 hours x 2,500 units = 5,500 hours

Therefore, the factory overhead volume variance = (5,500 – 5,000) x $1.00 = $500 unfavorable.

Since the actual factory overhead cost is higher than the budgeted cost, the variance is unfavorable. Hence, the correct answer is B, $2,000 unfavorable.

The Standard Costs and Actual Costs for Factory Overhead for the Manufacture