Radon Corporation manufactured 37,500 units during March. The following fixed overhead data pertain to March: Actual Static BudgetProduction 37,500 units 34,000 unitsMachine-hours 10,375 hours 10,200 hoursFixed overhead costs for March $213,200 $204,000What is the fixed overhead production-volume variance?

Question

BlackTom AI · Accepted Answer

Fixed overhead production-volume variance = Budgeted (static) fixed overhead − Fixed overhead applied to actual production (using the budgeted fixed overhead rate).

1) Relevant concepts:
- The budgeted (static) fixed overhead is the fixed cost expected for the budgeted production level.
- The budgeted fixed overhead rate is computed from the static budget (either per unit or per machine-hour).
- Applied fixed overhead = budgeted rate × standard hours/units allowed for actual production.
- Production-volume variance = Budgeted FOH − Applied FOH. A negative result means applied > budgeted (overapplied) and is treated as favorable.

2) Step-by-step reasoning and calculations:
- Static budget fixed overhead = $204,000 for budgeted production of 34,000 units.
- Budgeted fixed overhead rate per unit = $204,000 ÷ 34,000 units = $6.00 per unit.
- Applied fixed overhead for actual production = rate × actual units produced = $6.00 × 37,500 units = $225,000.
- Production-volume variance = Budgeted FOH − Applied FOH = $204,000 − $225,000 = −$21,000.

3) Intermediate steps shown:
- 204,000 / 34,000 = 6.00 (rate per unit)
- 6.00 × 37,500 = 225,000 (applied FOH)
- 204,000 − 225,000 = −21,000

4) Why this is correct:
Because actual production (37,500) exceeded the budgeted production (34,000), more fixed overhead was applied to production than the static budgeted amount. That overapplication is represented by a negative variance when computed as Budgeted − Applied, which is conventionally reported as a $21,000 favorable production-volume variance.

5) Why the other choices are incorrect:
- $9,200 (either favorable or unfavorable) equals the difference between actual fixed overhead incurred ($213,200) and the static budget ($204,000) and therefore reflects a spending (or budget) variance, not the production-volume variance.
- $21,000 unfavorable has the wrong sign; the applied overhead exceeds the budgeted amount, so the variance is favorable, not unfavorable.

6) Conclusion:
The fixed overhead production-volume variance is $21,000 favorable, matching the provided answer.

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