One plant uses a flexible budget and predetermined overhead rates to assignoverhead costs to the different product produced. Overhead costs are assigned usingdirect labor hours. Fixed overhead is budgeted at $2.3 million for the next year andvariable overhead is predicted to be $2.5 per direct labor hour.HD EDUThe plant was designed two years ago for to accommodate 180 production employees(direct labor), each working 2,000 hours per year. However, the expected volume fornext year will be greater than the normal volume because of the high demand for theproduct. Specifically, 200 production workers are projected for next year, and eachworker is expected to work 2,640 hours per year.At the end of the year, based on the actual sales volume produced, the standardvolume was 480,000 direct labor hours.Calculate the fixed cost production volume variance for the year assuming that normalvolume was used in setting the overhead rate. Round all numbers calculated to twodecimal places in the calculation.A. $767200 UB. $767200 FC. $207200 FD. $207200 U
Question
One plant uses a flexible budget and predetermined overhead rates to assignoverhead costs to the different product produced. Overhead costs are assigned usingdirect labor hours. Fixed overhead is budgeted at 2.5 per direct labor hour.HD EDUThe plant was designed two years ago for to accommodate 180 production employees(direct labor), each working 2,000 hours per year. However, the expected volume fornext year will be greater than the normal volume because of the high demand for theproduct. Specifically, 200 production workers are projected for next year, and eachworker is expected to work 2,640 hours per year.At the end of the year, based on the actual sales volume produced, the standardvolume was 480,000 direct labor hours.Calculate the fixed cost production volume variance for the year assuming that normalvolume was used in setting the overhead rate. Round all numbers calculated to twodecimal places in the calculation.A. 767200 FC. 207200 U
Solution
To calculate the fixed cost production volume variance, we first need to determine the budgeted fixed overhead rate. This is done by dividing the total budgeted fixed overhead by the normal volume.
The normal volume is calculated by multiplying the number of employees the plant was designed for (180 employees) by the number of hours each employee works per year (2,000 hours). So, the normal volume is 180 employees * 2,000 hours = 360,000 hours.
The budgeted fixed overhead rate is then 6.39 per hour.
Next, we need to calculate the applied fixed overhead, which is the budgeted fixed overhead rate multiplied by the standard volume. The standard volume is given as 480,000 hours. So, the applied fixed overhead is 3,067,200.
The fixed cost production volume variance is then the difference between the budgeted fixed overhead and the applied fixed overhead. So, the variance is 3,067,200 = -$767,200.
Since the variance is negative, this means that the actual volume was higher than the budgeted volume, resulting in a unfavorable variance. So, the answer is A. $767,200 U.
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