The Phelps Company applies overhead costs to products on the basis of standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March: The budgeted direct labor-hours is used as the denominator activity for the month.
-The fixed manufacturing overhead volume variance for March is:
A)$1,000 favorable
B)$5,000 favorable
C)$2,500 unfavorable
D)$5,000 unfavorable

Question

The Phelps Company applies overhead costs to products on the basis of standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March:  The budgeted direct labor-hours is used as the denominator activity for the month.
-The fixed manufacturing overhead volume variance for March is:
A)$1,000 favorable 
B)$5,000 favorable 
C)$2,500 unfavorable 
D)$5,000 unfavorable

Quizplus · Accepted Answer

Fixed component of predetermined overhead rate = Estimated total fixed manufacturing overhead cost F1F1F1S1F1F1F10 Estimated total amount of the allocation base
= $50,000 F1F1F1S1F1F1F10 (20,000 units F1F1F1S1F1F1F10 5 hours per unit)= $0.50 per DLH
Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= $50,000 - (110,000 hours F1F1F1S1F1F1F10 $0.50 per hour)
= $50,000 - $55000 = $5,000 F

The Phelps Company Applies Overhead Costs to Products on the Basis