Question

Zero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost incurred was $3,800 for 840 actual DLHs, of which $1,300 was fixed factory overhead.

What is the fixed overhead production volume variance, to the nearest whole dollar, for Zero Company in December?

Multiple Choice

$650 unfavorable.

$0.

$225 favorable.

$150 unfavorable.

$425 unfavorable.

Answer 1

• All working forms part of the answer
• Working

Fixed Overhead applied
Fixed OH per DL hr	$                   1.50	[1350 / 900]
Standard DL hours	800	[1000 dlhs x 80%]
Fixed Overhead applied	$           1,200.00	[800 x 1.5]
Volume Variance
Total Fixed Overhead applied	$           1,200.00	[calculated above]
Total Budgeted Fixed OH	$           1,350.00	[given]
Fixed Overhead volume Variance	$               150.00 [1350 – 1200]	Unfavourable

• Correct Answer = Option #4: $ 150 Unfavourable