Can you follow this problem?
https://imgur.com/zemDb5N
I find the explanation so confusing especially how they got to arrive at applied overhead of $22,800.
Does anyone have a simpler explanation of this sample problem?
Thanks!
CPA-03831
Baby Frames, Inc., evaluates manufacturing overhead by using variance analysis. The following
information applies to the month of May:
Actual Budgeted
Number of frames manufactured 19,000 20,000
Variable overhead costs $4,100 $2 per direct labor hour
Fixed overhead costs $22,000 $20,000; $1 per unit
Direct labor hours 2,100 hours 0.1 hour per frame
What is the production volume variance?
a. $1,000 favorable.
b. $1,000 unfavorable.
c. $2,000 favorable.
d. $2,000 unfavorable.
CPA-03831
Rule: The formula for the production volume variance component for overhead variances is
computed as applied overhead minus budgeted overhead based on standard hours. The sole
difference between these two calculated amounts is the application of fixed factory overhead.
Choice “b” is correct. Volume variances are computed as follows:
Applied Overhead
(Std Var OH Rate x Std DLH Allowed) + (Std Fixed OH Rate x Actual Production)
= ($2.00 x .1 x 19,000) + ($1.00 x 19,000) = $22,800
Budgeted overhead based on standard hours
(Std Var OH Rate x Std DLH Allowed) + (Std Fixed OH Rate x Standard Production)
= ($2.00 x .1 x 19,000) + ($1.00 x 20,000) = $23,800
Difference: Unfavorable Variance ($ 1,000)
Choices “a”, “c”, and “d” are incorrect, per the computation above.
.
