Martin Manufacturing applies factory overhead to products using direct labor hours. To calculate a predetermined overhead rate, Martin developed the following estimates for one month of production. Direct labor hours at 100 percent of normal capacity 12,000 hrs. Estimated fixed factory overhead costs $120,000 Estimated variable factory overhead costs at 100 percent of normal capacity $ 84,000 Martin’s predetermined factory overhead rate is $17 per direct labor hour. Of that rate, fixed factory overhead is $10 per hour ($120,000/12,000 hrs.) and variable factory overhead is $7 per hour ($84,000/12,000 hrs.). Martin’s labor standards allow 0.5 direct labor hours for each unit produced. During November, 20,000 units were produced. Actual fixed factory overhead costs were $120,000. Actual variable factory overhead costs were $88,000. Please calculate the Fixed Factory Overhead Volume Variance and please show each step of your calculation.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Martin Manufacturing applies factory
Direct labor hours at 100 percent of normal capacity 12,000 hrs.
Estimated fixed
Estimated variable factory overhead costs at 100 percent of normal capacity $ 84,000
Martin’s predetermined factory overhead rate is $17 per direct labor hour. Of that rate, fixed factory overhead is $10 per hour ($120,000/12,000 hrs.) and variable factory overhead is $7 per hour ($84,000/12,000 hrs.).
Martin’s labor standards allow 0.5 direct labor hours for each unit produced. During November, 20,000 units were produced. Actual fixed factory overhead costs were $120,000. Actual variable factory overhead costs were $88,000.
Please calculate the Fixed Factory Overhead Volume Variance and please show each step of your calculation.
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