Question

use the following information for the exercises below. (algo)
the following information applies to the questions displayed below
manuel company predicts it will operate at 80% of its productive capacity. its overhead allocation base is dlh and its standard amount per allocation base is 0.5 dlh per unit. the company reports the following for this period

exercise 21 - 18 (algo) volume and controllable variances lo p4

complete this question by entering your answers in the tabs below.

compute the overhead volume variance. indicate variance as favorable or unfavorable.
note: indicate the effect of the variance by selecting favorable, unfavorable, or no variance.

Explanation:

Step1: Calculate standard hours at 80% capacity

Standard hours at 80% capacity = Production units at 80% capacity × Standard DLH per unit
Standard hours at 80% capacity = \(53250\times0.5 = 26625\) DLH

Step2: Calculate standard hours for actual production

Standard hours for actual production = Actual production units × Standard DLH per unit
Standard hours for actual production = \(49200\times0.5=24600\) DLH

Step3: Calculate fixed overhead rate

Fixed overhead rate = Fixed overhead at 80% capacity / Standard hours at 80% capacity
Fixed overhead rate=\(\frac{53250}{26625}=2\) per DLH

Step4: Calculate overhead volume variance

Overhead volume variance=(Standard hours at 80% capacity - Standard hours for actual production)×Fixed overhead rate
Overhead volume variance=\((26625 - 24600)\times2\)
\(=2025\times2=4050\)

Since the standard hours at 80% capacity is greater than the standard hours for actual production, the variance is unfavorable.

Answer:

The overhead volume variance is \(\$4050\) unfavorable.