When Walston Corporation prepared its budget for 2014, it estimated fixed overhead of $540,000 ($45,000 per month) and variable overhead at $3.00 per unit produced. The company planned to produce 48,000 units during the year at a rate of 4,000 units each month. During April, the company produced 3,800 units and total overhead costs were $59,000. How much is the overhead volume variance for April?

Question

Quizplus · Accepted Answer

The overhead volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead. The budgeted fixed overhead for April is $45,000. The applied fixed overhead is based on the actual production of 3,800 units, which is 200 units less than the planned 4,000 units. The fixed overhead rate per unit is $45,000 / 4,000 = $11.25. Therefore, the overhead volume variance is 200 units x $11.25 = $2,250 unfavorable.

When Walston Corporation Prepared Its Budget for 2014, It Estimated