Question

Thinnews Co., uses machine hours to allocate manufacturing overhead cost to outputs:

Actual total overhead cost incurred	$	24,000
Actual fixed overhead cost incurred	$	10,000
Budgeted fixed overhead cost	$	11,000
Actual machine hours		5,000
Standard machine hours allowed for the units manufactured		4,800
Denominator level — machine hours		5,500
Standard variable overhead rate per machine hour	$	3.00

1.What is fixed overhead spending variance?

Group of answer choices

$3,000 favorable

$3,000 unfavorable

$1,000 favorable

$1,000 unfavorable

2.

What is production volume variance?

Group of answer choices

$1,500 unfavorable

$1,000 unfavorable

$1,400 unfavorable

$2,400 favorable

Answer 1

Answer 1)

Calculation of Fixed Overhead Spending Variance

Fixed Overhead Spending Variance = Budgeted Fixed overhead cost – Actual Fixed overhead cost

                                                                 =$ 11,000 - $ 10,000

                                                                 = $ 1,000 (Favorable)

Therefore fixed overhead spending variance is $ 1,000 (Favorable).

Answer 2)

Calculation of Production Volume Variance

Production Volume Variance = (Standard Machine hours allowed for Actual output – denominator level machine hours) X Fixed overhead rate per machine hour

                                                               = (4,800 machine hours – 5,500 machine hours) X $ 2 per machine hour

                                                                 = $ 1,400 (Unfavorable)

Therefore production volume variance is $ 1,400 (Unfavorable).

Working Note:

Calculation of Fixed overhead rate per machine hour:

Fixed overhead rate = Budgeted Fixed overheads/ denominator level machine hours

                                       = $ 11,000/ 5,500 machine hours

                                       = $ 2.00 per machine hour.