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Horngren'S Financial And Managerial Accounting
Found in: Page 1305

Short Answer

Question: How is the fixed overhead volume variance different from the other variances?

Answer

The fixed overhead volume variance is different from other variances; first, it is not a flexible variance, and second, it is a volume variance

See the step by step solution

Step by Step Solution

Step 1 Definition of the variance

The variance is defined as the variation between the planned or the forecasted amount computed by the management of the company and the actual amount.

Step 2 Difference of fixed overhead volume from the other variance

The fixed overhead volume variance is not a flexible budget variance. Still, on the other hand, the fixed overhead cost variance, variable overhead cost variance, and variable overhead efficiency variance are flexible budget variances.

This is volume variance; it is different from cost variance. It shows how allocating fixed costs on a per-unit basis causes a difference between budgeted and allocated fixed costs.

Most popular questions for Business-studies Textbooks

Computing and journalizing standard cost variances

Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:

Direct material (0.2 lbs. @$0.25 per lb)

$0.05

Direct Labor (3 minutes @ $0.11 per minute)

0.33

Manufacturing Overhead:

Variable (3 minutes @ $0.06 per minute)

$0.18

Fixed (3 minutes @ $0.13 per minute)

0.39

0.57

Total Cost per Coffee Mug

$0.95

Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of $0.17 per lb.

d. Actual direct labor usage was 197,000 minutes at a total cost of $25,610.

e. Actual overhead cost was $10,835 variable and $29,765 fixed.

f. Selling and administrative costs were $95,000.

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production costs from Work­-in­-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?

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