Adams, Inc. uses the following standard to produce a single unit of its product: overhead (2 hrs. @ $3/hr.) $6. The flexible budget for overhead is $100,000 plus $1 per direct labor hour. Actual data for the month show overhead costs of $150,000, and 24,000 units produced. The overhead volume variance is:
A) $10,000 favorable.
B) $12,000 favorable.
C) $4,000 unfavorable.
D) $16,000 unfavorable.
E) $36,000 unfavorable.

Question

Quizplus · Accepted Answer

The flexible budget for overhead would be calculated as follows:
$100,000 + ($1 x 24,000 direct labor hours) = $124,000
The actual overhead costs of $150,000 are $26,000 (favorable) over the flexible budget. 
The overhead volume variance is calculated as follows: 
Standard overhead cost – Flexible overhead budget = Overhead volume variance 
$6 per unit x 24,000 units - $124,000 = $4,000 (unfavorable)