If a company uses a two-variance analysis for overhead variances and uses a predetermined rate for absorbing manufacturing overhead, the volume variance is the:

Question

Quizplus · Accepted Answer

If a company uses a predetermined rate for absorbing manufacturing overhead, the volume variance is the underapplied or overapplied fixed cost element of overhead.
Consider the following proof:
The volume variance is the difference between the factory overhead per the flexible budget (standard overhead budgeted for actual level of production) and the factory overhead applied at standard.
 11eb16ac_e007_41aa_984d_0d861dc6bdeb_TB6154_00 Budgeted fixed factory overhead per hour $12,000 / 16,000 = $.75 per hour
Difference in allowed vs. budgeted hours 16,250 - 16,000 = 250 hours
Variance attributable to fixed factory overhead 250 x $.75 = $187.50

If a Company Uses a Two-Variance Analysis for Overhead Variances