Fixed Manufacturing Overhead Volume Variance Accounting Need Help

Question

Germosen, Inc. uses a standard cost system with direct labor hours (DLH's) as the application base for manufacturing overhead. Results for the year are below:

Prior to start of the year:

Standard DLH's per unit : 0.20

Planned Production : 800,000 units

Budgeted DLH's (denominator hours) : 160,000

Predetermined Fixed Manufacturing Overhead Rate : $12.48

 

At the end of the year :

Actual Production : 795,000 units

Actual DLH's : 158,000

Actual Fixed Manfacturing overhead Cost : $936,000

 

Question : What was Germosen's fixed manufacturing overhead volume variance for the year?

A) $24,960 Favorable B) $24,960 Unfavorable C) $12,480 Favorable D) $12,480 Unfavorable E) None of the Above

 

Answer was D) but I need help with steps as to how

 

Answer 1

The answer is option D) 12,480 unfavorable variance.

 

If we subtract the difference between planned production 800,000 units and actual production 795,000 units, this will give me the volume difference which is 5000 units unfavorable. As a result, the 5000 units short fall resulted in 5000x .20 DLH's or 1000 DLH's lost from what was originally planned to absorb $12,480 (1000x$12.48) in fixed MFG overhead cost. So the volume variance of fixed MFG OH cost is $12,480 unfavorable due to short fall of 5000 units in production.