Question

exercise 21-21 (algo) volume variance lo p4

liu company produced 810 units. its overhead allocation base is dlh and its standard amount per allocation base is 8 dlh per unit. its standard overhead rate is $10 per dlh. the flexible overhead budget at an activity level of 810 units shows $32,500 in variable overhead costs and $36,500 in fixed overhead costs. compute the volume variance.
note: indicate the effect of the variance by selecting favorable, unfavorable, or no variance.

Explanation:

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<reasoning>

Calculate budgeted and applied fixed overhead

\[

$$\begin{aligned} &\text{Budgeted Fixed Overhead} = \$36,500\\ &\text{Standard DLH allowed} = 810 \text{ units} \times 8 \text{ DLH/unit} = 6,480 \text{ DLH}\\ &\text{Standard Overhead Rate} = \$10 \text{ per DLH}\\ &\text{Standard Variable Overhead Rate} = \frac{\$32,500}{810 \text{ units} \times 8 \text{ DLH/unit}} = \frac{\$32,500}{6,480 \text{ DLH}} \approx \$5.0154 \text{ per DLH}\\ &\text{Standard Fixed Overhead Rate} = \$10 - \$5.0154 = \$4.9846 \text{ per DLH}\\ &\text{Applied Fixed Overhead} = 6,480 \text{ DLH} \times \$4.9846 \text{ per DLH} = \$32,300 \end{aligned}$$

\]

Compute volume variance

\[

$$\begin{aligned} &\text{Volume Variance} = \text{Budgeted Fixed Overhead} - \text{Applied Fixed Overhead}\\ &\text{Volume Variance} = \$36,500 - \$32,300 = \$4,200 \quad (\text{Unfavorable}) \end{aligned}$$

\]
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<answer>

Volume Variance
Fixed overhead applied	\$32,300
Volume variance	\$4,200	Unfavorable

</answer>

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Answer:

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<reasoning>

Calculate budgeted and applied fixed overhead

\[

$$\begin{aligned} &\text{Budgeted Fixed Overhead} = \$36,500\\ &\text{Standard DLH allowed} = 810 \text{ units} \times 8 \text{ DLH/unit} = 6,480 \text{ DLH}\\ &\text{Standard Overhead Rate} = \$10 \text{ per DLH}\\ &\text{Standard Variable Overhead Rate} = \frac{\$32,500}{810 \text{ units} \times 8 \text{ DLH/unit}} = \frac{\$32,500}{6,480 \text{ DLH}} \approx \$5.0154 \text{ per DLH}\\ &\text{Standard Fixed Overhead Rate} = \$10 - \$5.0154 = \$4.9846 \text{ per DLH}\\ &\text{Applied Fixed Overhead} = 6,480 \text{ DLH} \times \$4.9846 \text{ per DLH} = \$32,300 \end{aligned}$$

\]

Compute volume variance

\[

$$\begin{aligned} &\text{Volume Variance} = \text{Budgeted Fixed Overhead} - \text{Applied Fixed Overhead}\\ &\text{Volume Variance} = \$36,500 - \$32,300 = \$4,200 \quad (\text{Unfavorable}) \end{aligned}$$

\]
</reasoning>

<answer>

Volume Variance
Fixed overhead applied	\$32,300
Volume variance	\$4,200	Unfavorable

</answer>

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