Question

The data below relate to the month of April for Monroe, Inc., which uses a standard cost system and a two-variance analysis of factory overhead:

Actual direct labor hours used

16,500

Standard direct labor hours allowed

16,250

Actual total factory overhead

$53,200

Budgeted fixed factory overhead

$12,000

Budgeted activity in hours

16,000

Total overhead application rate per standard direct labor hour

$3.25

Variable overhead application rate per standard direct labor hour

$2.50

What was Monroe's production-volume variance for April?

a.

$187.50 favorable

b.

$187.50 unfavorable

c.

$437.50 favorable

d.

$437.50 unfavorable

Answer 1

Fixed overhead absorption rate

= Budgeted fixed overhead

Budgeted activity level

= $12,000

16,000 hours

= $0.75 per hour

Production volume variance

= (Standard hours - Budgeted hours) x Fixed overhead rate

= (16,250 - 16,000) x $0.75

= $187.5(F)

The correct answer is A

Step-by-step explanation:

First and foremost, we need to calculate fixed overhead absorption rate, which is the ratio of budgeted fixed overhead to budgeted hours. then, we will calculate the production volume variance, which is the difference between standard hours and budgeted hours multiplied by fixed overhead absorption rate.