The standard cost and actual costs for factory overhead for the manufacture of 2500 units of actual production are as follows Fixed overhead (based on 10000 hours)

3 hours per unit @ $0.80 per hour

Variable overhead

3 hours per unit @ $2.00 per hour

Total variable cost $18000

Total fixed cost $8000

The amount of the fixed factory overhead volume variance is

A-$2000 favorable

B-$2000 unfavorable

C-$2500 unfavorable

D-$0

The amount of the variable factory overhead controllable variance is

A-$2000 unfavorable

B-$3000 favorable

C-$0

D-$3000 unfavorable

1. The correct option is B

2. The correct option is D

Explanation:

1

The fixed factory overhead volume variance is computed as:

Fixed factory overhead volume variance = Standard fixed overhead rate per hour * (Standard hours for actual output - Budgeted Output)

where

Standard fixed overhead rate per hour is $0.80

Standard hours for actual output = 2,500 units * 3 hours per unit

Budgeted output is 10,000 hours

= $0.80 * [ (2,500 * 3) - 10,000]

= $0.80 * (2,500)

= ($2,000)

It is unfavorable as it is negative.

2

The variable factory overhead controllable variance is computed as:

Variable factory overhead controllable variance = Actual hours * (Standard rate per hour - Actual rate per hour)

where

Actual hours = 2,500 units * 3 hours per unit

Standard rate per hour is $2.00 per hour

Actual rate per hour = Total variable cost / Actual hours

= (2,500 * 3) * [ 2 - ($18,000 / 7,500) ]

= 7,500 * (2 - $2.4)

= 7,500 * ($0.4)

= ($3,000)

It is unfavorable as it is negative.