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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....

ekkarill92 answered 1 year ago
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