Question

Behring Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual fixed manufacturing overhead costs for the most recent month appear below:

	Original Budget	Actual Costs
Fixed overhead cost:
Supervision	$4,680	$4,800
Utilities	6,120	5,820
Factory depreciation	21,240	20,720
Total fixed manufacturing overhead cost	$32,040	$31,340

The company based its original budget on 3,600 machine-hours. The company actually worked 3,570 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 3,650 machine-hours. What was the overall fixed manufacturing overhead volume variance for the month?

$267 favorable

$267 unfavorable

$445 unfavorable

$445 favorable correct answer

Volume variance = Budgeted fixed overhead cost – Fixed overhead applied to work in process
Fixed component of predetermined overhead rate = Estimated total fixed manufacturing overhead cost ÷ Estimated total amount of the allocation base

= $32,040 ÷ 3,600 machine-hours = $8.90 per machine-hour

= $32,040 – (3,650 machine-hours × $8.90 per machine-hour)

= $32,040 – $32,485 = $445 F

Why is it Favorable?

Answer 1

	Although 445 is negative, but still it is favorable because:-
1)	Actual hours worked is 3,570 ,which is less than standard hours required for actual output which is 3,650 ,
2)	It results in Less Actual overheads as compare to standard overheads required to produce actual units, which is in favor of company