Question

H&X Co. uses a standard job cost system with a normal capacity of 27,000 direct labour hours. H&X Co. produces 12,500 units, which cost $196,000 for direct labour (24,500 hours), $28,750 for variable overhead, and $141,875 for fixed overhead. The standard variable overhead per unit is $2 (2 hours at $1 per hour), and the standard fixed overhead per unit is $10.20 (2 hours at $5.10 per hour).

Calculate the fixed overhead production volume variance.

Fixed overhead production volume variance

Answer 1

Fixed overhead volume variance reference to difference between fixed overhead as per master budget at normal capacity and fixed overhead cost as per flexible budget at actual activity volume. If fixed overhead of flexible budget is less than master budgeted fixed overhead, it is favorable; if both are equal, there is no variance; otherwise, it is unfavorable Number of units produced 12,500 Standard hours required per unit 2 Standard hours allowed for actual production 25,000 [12500 units x 2 hours] Standard fixed overhead rate per labor hour $5.10 [Given] $127,500 [25000 hours x $5.10] $137,700 [27000 hours x $5.10] $10,200 Favorable as flexible budget fixed overhead allowed is less than master budget fixed overhead cost Flexible budget fixed overhead cost allowed Fixed overhead master budgeted Fixed overhead volume variance (Difference between $127500 and $137700)