The standard cost and actual costs for factory overhead for the manufacture of 2500 units of actual production are as follows

fixed overhead (based on 1 hours)
3 hours per unit @ $0.80 per hour

variable overhead
3 hours per unit @ $2.00 per hour

total variable cost $18000
total fixed cost $8000

the amount of the fixed factory overhead volume variance is
a-$2000 favorable
b-$2000 unfavorable
c-$2500 unfavorable
d-$0

the amount of the variable factory overhead controllable variance is
a-$2000 unfavorable
b-$3000 favorable
c-$0
d-$3000 unfavorable

1. The correct option is B

2. The correct option is D

Explanation:

1

The fixed factory overhead volume variance is computed as:

Fixed factory overhead volume variance = Standard fixed overhead rate per hour × (Standard hours for actual output - Budgeted Output )

where

Standard fixed overhead rate per hour is $0.80

Standard hours for actual output = 2,500 units × 3 hours per unit

Budgeted output is 10,000 hours

= $0.80 × [(2,500 × 3) - 10,000]

= $0.80 × (2,500)

= ($2,000)

It is unfavorable as it is negative.

2

The variable factory overhead controllable variance is computed as:

Variable factory overhead controllable variance = Actual hours × ( Standard rate per hour - Actual rate per hour)

where

Actual hours = 2,500 units × 3 hours per unit

Standard rate per hour is $2.00 per hour

Actual rate per hour = Total variable cost / Actual hours

= (2,500 × 3) × [ 2 - ( $18,000 / 7,500)]

= 7,500 × ( 2 - $2.4)

= 7,500 × ($0.4)

= ($3,000)

It is unfavorable as it is negative.

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