[flop310]

I am having trouble understanding OH volume. Can some please explain the solution to this problem? Thanks

Budgeted overhead for Company at normal capacity of 30,000 direct labor hours is $6 per hr for variable and $4 per hour for fixed. In May, $310,000 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed. The overhead volume variance is…….

Answer $8,000 Favorable

[jcgarciarosa]

One form to obtain Volume Variance is the diference of Actual overhead hour- Standar overhead hour x standar FOH hour. 32,000-31,500=500 * $4=$8,000. Is favorable because the actual hour are less than standard hour. Sorry for my english, I know is no good. But I hope this help you.

[jokami]

Lets see if I remember my BEC;

Actual:

$310,000.000

Budget and Actual:

120,000 + 189,000 = $309,000.00

Budget and Standard:

120,000 + 192,000 = $312,000.00

Applied:

$320,000.00

Volume overhead = applied – budget and standard

$320,000.00 – $312,000.00 = $8,000.00 Favorable.

The applied was a bigger number therefore it “applied” more than needed so that is favorable. I hope this helps.

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[flop310]

Thank you! For some reason I thought variable costs were ignored. I was wrong… Also when finding the volume overhead you choose $312,000 instead of $309,000?

[jokami]

Remember that overhead variances have “four” in total:

1. Actual vs Applied = total overhead variance

2. Actual vs Fixed Budget / Actual Variable = Spending Variance

3. Fixed Budget / Actual Variable vs Fixed Budget / Standard Variable = Efficiency Variance

4. Fixed Budget / Standard Variable vs Applied = Volume Variance

The sum of the spending, efficiency and volume variance totals the total overhead variance.

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[flop310]

I was trying to avoid memorizing these formulas. I guess now I have to. Thanks again!

[Author]

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