Hayward Inc. Hayward Inc. produces a unique item. Hayward's management team wishes to perform a variance analysis on its fixed overhead. Fixed overhead is applied to units produced using direct labor hours as its cost driver. The company's managerial accountant has compiled the following information:
Refer to the Hayward Inc. information above. Hayward's fixed overhead volume variance is:
A) $5,000.
B) $2,000.
C) $3,000.
D) $2,500.

Question

Hayward Inc. Hayward Inc. produces a unique item. Hayward's management team wishes to perform a variance analysis on its fixed overhead. Fixed overhead is applied to units produced using direct labor hours as its cost driver. The company's managerial accountant has compiled the following information:
 Refer to the Hayward Inc. information above. Hayward's fixed overhead volume variance is:
A) $5,000. 
B) $2,000. 
C) $3,000. 
D) $2,500.

Quizplus · Accepted Answer

The fixed overhead volume variance shows the difference between the budgeted fixed overhead and the actual fixed overhead, based on the actual number of direct labor hours worked. The formula for calculating the fixed overhead volume variance is as follows:
Fixed Overhead Volume Variance = Budgeted Fixed Overhead - (Actual Direct Labor Hours x Fixed Overhead Rate)

Budgeted fixed overhead = $30,000
Actual direct labor hours = 6,500
Fixed overhead rate = $5 per direct labor hour

Fixed Overhead Volume Variance = $30,000 - (6,500 x $5)
Fixed Overhead Volume Variance = $30,000 - $32,500
Fixed Overhead Volume Variance = -$2,500 or $2,500 unfavorable.

Therefore, the correct answer is C) $3,000.