Kris Company calculates its predetermined rates using practi

Kris Company calculates its predetermined rates using practical volume, which is 325,000 units. The standard cost system allows 3 direct labor hours per unit produced. Overhead is applied using direct labor hours. The total budgeted overhead is $4,260,000, of which $994,000 is fixed overhead. The actual results for the year are as follows:

Units produced:                               318,000

Direct labor:                                    965,000 hours @

$12.00/hour

Variable overhead:                           $3,302,000

Fixed overhead:                               $998,000

Calculate the fixed overhead volume variance.

a. $32,000 U

b. $20,000 F

c. $22,000 F

d. $4,000 U

e. None of these.

Solution

Solution:

Budgeted fixed overhead = $994,000

Budgeted direct labor hours = 325000*3 = 975000 hours

Budgeted fixed overhead rate = $994,000 / 975000 = $1.01948

Standard hours for actual production = 318000*3 = 954000 hours

Fixed overhead applied = 954000 * $1.01948 = $972,591

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead = $972,591 - $994,000 = $21,409 U

Hence option e is correct.