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Anacortes, Inc. uses a standard cost system. At the beginning of the year, it budgeted $50,000 for fixed overhead. The estimated variable overhead allocation rate was $3.30 per machine hour, and machine hours is the cost allocation base for both variable and fixed overhead. The static budget was based on 16,000 units of production and sales, and each unit was expected to use 2.5 machine hours. Actual total overhead was $170,000, and Anacortes produced and sold 15,000 units during the year. Actual machine hours for the year were 36,000.
-The fixed overhead production volume variance was
A) $4,950 favorable
B) $3,750 favorable
C) $1,200 unfavorable
D) $3,125 unfavorable

Question

Quizplus · Accepted Answer

The fixed overhead production volume variance is calculated as the difference between the budgeted fixed overhead and the applied fixed overhead based on actual production. The budgeted fixed overhead is $50,000. The standard machine hours for actual production (15,000 units x 2.5 hours) is 37,500 hours. The applied fixed overhead is based on these standard hours, but since actual machine hours were 36,000, the variance is unfavorable. The variance is calculated as (37,500 - 36,000) hours x ($50,000 / 40,000 hours) = $3,125 unfavorable.

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