Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labour hour. The overhead rate is based on 10,000 hours. Actual results were: Standard direct labour hours 9,000
Actual direct labour hours 10,000
Fixed overhead $190,000
Variable overhead $185,000
The fixed overhead production volume variance was:
A)$15,000 F
B)$20,000 U
C)$10,000 F
D)$10,000 U

Question

Quizplus · Accepted Answer

To calculate the fixed overhead production volume variance, we need to compare the actual hours with the standard hours and multiply this difference by the fixed overhead rate per hour. The standard hours for the actual output are (9,000/10,000) x 10,000 = 9,000 hours. The difference between actual and standard hours is 1,000 hours, and the fixed overhead rate per hour is ($200,000/10,000) = $20. Therefore, the fixed overhead production volume variance is 1,000 x $20 = $20,000 unfavorable (or, in other words, $20,000 U).

Burkett Company Uses a Standard Cost System