The following information was taken from the annual manufacturing overhead cost

Question

The following information was taken from the annual manufacturing overhead cost budget of Coen company:

Variable manufacturing overhead costs $69300
Fixed manufacturing overhead costs $41580
Normal production level in labor hours 23,100
Normal production level in units 5775

During the year, 5600 units were produced, 18340 hours were worked and the actual manufacturing overhead was $113400. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen’s volume overhead variance is “

Explanation / Answer

Volume overhead variance: Flexible budget level of overhead for actual level of production - Overhead applied to production using standard overhead rate. Variable manufacturing overhead cost = $69,300 Variable manufacturing per hour (69,300 / 23,100) = $3 Fixed manufacturing overhead cost     = 41,580 Total manufacturing overhead             = $110,880 Estimated labor hours                         = 23,100 Standard rate (estimeted overhead / estimated hours) = $110,880 / 23,100 hours Standard rate per hour                        = $4.8 So volume overhead variance = 41,580 + ($3 x 18,340 hours) - ($4.8 x 18,340 hours)                                                = 41,580 + 55,020 - 88,032                                                = 96,600 - 88,032 Volume overhead variance       = $8,568 (Unfavorable) Volume overhead variance       = $8,568 (Unfavorable)

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