The following information is available from Thinnews Co. ,a company that uses machine hours to apply factory overhead:
Under a three-variance breakdown (decomposition)of the total factory overhead variance,the factory overhead production-volume variance is:
A)$400 favorable.
B)$600 unfavorable.
C)$1,400 favorable.
D)$1,400 unfavorable.
E)$2,000 favorable.

Question

The following information is available from Thinnews Co. ,a company that uses machine hours to apply factory overhead: 
Under a three-variance breakdown (decomposition)of the total factory overhead variance,the factory overhead production-volume variance is:
A)$400 favorable. 
B)$600 unfavorable. 
C)$1,400 favorable. 
D)$1,400 unfavorable. 
E)$2,000 favorable.

Quizplus · Accepted Answer

Since we know that the company uses machine hours to apply factory overhead, the factory overhead variance can be broken down into three variances: the variable overhead efficiency variance, the variable overhead spending variance, and the production-volume variance. 
We are given no information regarding the variable overhead variances, but we do know that the total factory overhead variance is $1,400 unfavorable. Therefore, the remaining $1,400 variance must be the production-volume variance. Since the variance is unfavorable, it means that actual machine hours used were higher than the budgeted machine hours required to produce the actual output. So, the company incurred more overhead costs than expected due to an increase in machine hours.

The Following Information Is Available from Thinnews Co