Question
In: Accounting
Colina Production Company uses a standard costing system. The following information pertains to the current year....
Colina Production Company uses a standard costing system. The
following information pertains to the current year. Direct labor
hours is the driver used to assign overhead costs to
products.
| Actual production | 5,500 units |
| Actual factory overhead costs ($16,500 is fixed) | $40,125 |
| Actual direct labor costs (11,250 hours) | $131,625 |
| Standard direct labor for 5,500 units: | |
| Standard hours allowed | 11,000 hours |
| Labor rate | $12.00 |
The factory overhead rate is based on an activity level of 10,000
direct labor hours. Standard cost data for 5,000 units is as
follows:
| Variable factory overhead | $22,500 |
| Fixed factory overhead | 13,500 |
| Total factory overhead | $36,000 |
What is the fixed overhead volume variance for Colina Production
Company?
a.$3,600 (F)
b.$1,350 (U)
c.$4,125 (U)
d.$1,350 (F)
Solutions
Expert Solution
| Answer : d. $1350 (F) |
CALCULATION:
FIXED OVERHEAD VOLUME VARIANCE:
Step 1: Calculation of Standard rate per hour:
Standard fixed overhead = $13500
Budgeted hours = 10000 hours
| Standard rate per hour = $13500 / 10000 hours = $1.35 per hour |
Step 2: Fixed overhead volume variance:
| Fixed overhead volume variance = (standard hours allowed * standard rate per hour) - Budgeted fixed overheads |
= (11000 * $1.35) - $13500
= $14850 - $13500
| Fixed overhead volume variance = $1350 Favorable |
Alternatively,
Fixed overhead volume variance can be calculated as follows,
Step 1: Calculation of Standard rate per unit:
Standard fixed overhead = $13500
Budgeted units = 5000 units
| Standard rate per unit = $13500 / 5000 units = $2.7 per unit |
Step 2: Fixed overhead volume variance:
| Fixed overhead volume variance = (Actual output * standard rate per Unit) - Budgeted fixed overheads |
= 5500 units * $2.7 per unit - $13500
= $14850 - $13500
| Fixed overhead volume variance = $1350 Favorable |
All the best....
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