In: Accounting

calculation of the total factory overhead variance.

A firm applied factory overhead of $2 per unit to manufacture each inventory unit. They expected to make 10 units of inventory but made 12 units. The total cost of factory overhead was $21 for the period. The total factory overhead variance was

Select one:

a. $3 Favorable.

b. $1 Favorable.

c. $1 Unfavorable.

d. $3 Unfavorable


Expert Solution

Total factory overhead variance = Actual factory overhead cost- standard factory overhead cost 

In the above case the firm expected manufacturing of 10 units but they made 12 units.So standard factory overhead of 12 units  should be taken for calculation.

Total factory overhead variance = $ 21 - ($ 2 x 12 units )

                                                   =   $ 3 ( favourable )

When the actual expenses are lower than the standard one's then it is said to be Favourable  for the firm. If the standard overhead is lower than the actual overhead arised then it is unfavourable  for the firm.

Option -A i.e., $ 3  Favourable .

The total factory overhead variance is $3 Favourable .

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