The data below relate to the month of May for Sosa Inc., which uses a standard c
ID: 2453111 • Letter: T
Question
The data below relate to the month of May for Sosa Inc., which uses a standard cost system and two-variance analysis of overhead:
Actual total direct labor............................................................ $43,400
Actual hours used..................................................................... 14,000
Standard hours allowed for good output................................... 15,000
Direct labor rate variance—debit.............................................. $1,400
Actual total overhead................................................................ $40,250
Budgeted fixed costs................................................................ $9,000
“Normal” activity in hours........................................................ 18,000
Total overhead application rate per standard direct labor hour.. $3.00
What was Sosa’s volume variance for May?
a. $1,250 favorable c. $1,500 favorable
b. $1,250 unfavorable d. $1,500 unfavorable
Explanation / Answer
A volume variance is the difference between the actual quantity sold or consumed and the budgeted amount expected to be sold or consumed, multiplied by the standard price per unit. This variance is used as a general measure of whether a business is generating the amount of unit volume for which it had planned.
budgeted hours = labour rate variance/actual labour rate per hour + actual labour hours
= -1400/3.1 + 14000
13548.4 hours
labour volume variance= (actual hours- budgeted hours ) budgeted rate per hour
=(14000- 13548.4)3
= 1354.8
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