Figure 9-3
Alumni Manufacturing Company has the following information pertaining to a normal monthly activity of 10,000 units:
Standard factory overhead rates are based on a normal monthly volume of one standard direct hour per unit. Standard factory overhead rates per direct labor hour are:

-Refer to Figure 9-3. What is the fixed overhead volume variance for Alumni?
A) $10,000 (
B) $-0-
C) $4,000 (
D) $6,000 (

Question

Figure 9-3
Alumni Manufacturing Company has the following information pertaining to a normal monthly activity of 10,000 units:
Standard factory overhead rates are based on a normal monthly volume of one standard direct hour per unit. Standard factory overhead rates per direct labor hour are:
 
-Refer to Figure 9-3. What is the fixed overhead volume variance for Alumni?
A) $10,000 (
B) $-0- 
C) $4,000 (
D) $6,000 (

Quizplus · Accepted Answer

The fixed overhead volume variance formula is:
Fixed overhead volume variance = (Actual production - Normal production) x Standard fixed overhead rate

Given:
Actual production = 10,000 units
Normal production = ?
Standard fixed overhead rate = $0.80 per direct labor hour

We need to find the normal production in direct labor hours:
Normal production = Standard direct labor hours per unit x Normal production
Standard factory overhead rates are based on a normal monthly volume of one standard direct hour per unit.
So, Normal production = 10,000 units x 1 standard direct labor hour per unit = 10,000 direct labor hours

Now we can calculate the fixed overhead volume variance:
Fixed overhead volume variance = (Actual production - Normal production) x Standard fixed overhead rate
= (10,000 - 10,000) x $0.80
= $0

The variance is zero if the actual production equals the normal production level. But, in this case, the actual production is 10,000 units, which is the normal level. Hence, the fixed overhead volume variance is zero. But none of the options suggest this, so we have to look for the closest option. The closest option is D, which is $6,000 (U). But we know that this is not correct because we the answer is zero. So, the best choice is B.

Figure 9-3 Alumni Manufacturing Company Has the Following Information Pertaining to a to a Normal