[Never_Give_Up1]

Becker Question –

So I just got done with a question in on Fixed Overhead Volume Variance. I wont type the whole thing out because there is a TON of information. But the answer boils down to:

Applied fixed overhead (standard F.O. rate X actual production) = 5 X 21000 = 105,000

Budgeted Overhead (standard OH rate X Standard production) = 5 X 20000 = 100,000

The answer is gives is $5,000 favorable… how can this be?

Isn’t is suppose to be $5,000 unfavorable? Since there will be a debit balance between actual v. budgeted? This is making me question my sanity right now and everything I “thought” I have learned.

Actual question is CPA-03850 in B2 – 99 (other questions)

FAR - 81
REG - 81
AUD - 82
BEC - 81

Ethics - Done
State License Exam - Done

License - Licensed CPA in Utah

[barelystayingsane]

Hey @Never_Give_Up1! Glad to see you starting lots of threads on here!

The reason it is favorable is because the company produced more units than they expected, which means that fixed overhead can be spread over more units, thus reducing the per cost per unit. Just remember that production volume variance is the backwards cost variance that actually wants “actual” to be higher than “budgeted.”

[Author]

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