Franklin Glass Works uses a standard cost system in which manufacturing overhead

Question

Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied on the basis of standard direct labor-hours. Each unit requires one standard hours of direct labor for completion. The denominator activity for the year was based on budgeted production of 130,000 units. Total overhead was budgeted at $1,000,000 for the year, and the fixed manufacturing overhead rate was $2.30 per direct labor-hour. The actual data pertaining to the manufacturing overhead for the year are presented below: Actual production 128,000 units Actual direct labor-hours 310,000 direct labor-hours Actual variable manufacturing overhead $222,000 Actual fixed manufacturing overhead $562,000 Franklin's fixed manufacturing overhead volume variance for the year is: $37,500 unfavorable $11,580 favorable $4,600 unfavorable $32,500 favorable

Explanation / Answer

Budgeted fixed overhead = Budgeted No. of labor hours x fixed overhead per hour

    =130,000 x 2.30

     = 299,000

Fixed overhead volume variance = (Budgeted fixed overhead x Units produced/ Budgeted production) - Budgeted fixed overhead

                                                                = (299,000 x 128,000 /130,000) - 299,000

                                                                = 294,400 -299,000

                                                                =4,600 Unfavorable

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