CMA Study Group

Please answer

  • 1.  Please answer

    Posted 09-10-2013 12:08 PM
    The JoyT Company manufactures Maxi Dolls for sale in toy stores. In planning for this year, JoyT estimated variable factory overhead of $600,000 and fixed factory overhead of $400,000. JoyT uses a standard costing system, and factory overhead is allocated to units produced on the basis of standard direct labor hours. The denominator level of activity budgeted for this year was 10,000 direct labor hours, and JoyT used 10,300 actual direct labor hours.

    Based on the output accomplished during the year, 9,900 standard direct labor hours should have been used. Actual variable factory overhead was $596,000, and actual fixed factory overhead was $410,000 for the year.

    Based on this information, the volume variance for JoyT for this year is

    Ahmed Mahmoued Mohamed
    Global Art

  • 2.  RE:Please answer

    Posted 09-10-2013 01:14 PM
    Volume variance is = Budgeted O/H - Applied O/H

    400,000 - (9900 x 40) = 4000

    unfavourable because applied over head is less than budget. hence negetive

    Sadakathulla Poil CMA
    Maximus Air Cargo
    Abu Dhabi
    United Arab Emirates

  • 3.  RE:Please answer

    Posted 09-10-2013 05:01 PM

    Volume variance pertains to the production-volume variance for fixed overhead, comparing budgeted fixed overhead against fixed overhead applied to actual production.

    $400,000 - Budgeted fixed overhead
    $396,000 - Applied fixed overhead (9,900 Standard hours based on actual output X $4 Std FOH rate)
    $    4,000 - Unfavorable Production Volume Variance

    The company has a budget of $400,000 yet they were able to apply only $396,000 in to production. JoyT has under-applied fixed overhead; therefore, an unfavorable variance of $4,000.

    $400,000/10,000 = $4 Std fixed overhead rate

    Angel Secerio CMA, CPA
    Leighton Middle East LLC
    Madinat Sultan Qaboos

  • 4.  RE:Please answer

    Posted 09-13-2013 10:48 AM

    why dont we use 10.300 as actual hours instead of 9900 standard hours?

    Ozge Yagcioglu
    Access Turkey Capital Group

  • 5.  RE:Please answer

    Posted 09-14-2013 03:25 AM


    Thank you for this follow-up question.

    Recall that under standard costing, manufacturing overhead is applied to production on the basis of the amount of the allocation base (direct labor hours in this case) allowed for the actual production.  The basis of the application is different if normal costing is used, where manufacturing overhead would be applied based on the amount of the allocation base actually used (10,300 hours) for the actual units of output rather than on the standard (9,900 hours) allowed.

    This is where the Volume Variance is "odd-man-out" because it does not measure a difference between an actual incurred cost and a budgeted cost. Rather, it measures the difference between budgeted and applied fixed overhead costs.

    Angel Secerio CMA, CPA
    Leighton Middle East LLC
    Madinat Sultan Qaboos

  • 6.  RE: Please answer

    Posted 21 days ago
    Hi Angel,
    Please help to clarify when we cannot consider variable volume variance. Thanks.