Question

A manufacturer has an estimated practical capacity of 90,000 machine hours, and each unit requires two machine hours. The following data apply to a recent accounting period: Actual variable overhead$ 240,000 Actual fixed overhead$ 442,000 Actual machine hours worked 88,000 Actual finished units produced 42,000 Budgeted variable overhead at 90,000 machine hours$ 200,000 Budgeted fixed overhead$ 450,000 Of the following factors, the manufacturer's production volume variance is most likely to have been caused by: A. A wage hike granted to a production supervisor. B. A newly imposed initiative to reduce finished goods inventory levels. C. Acceptance of an unexpected sales order. D. Temporary employment of workers with lower skill levels than originally anticipated.

Answer 1

Answer:

Of the following factors, the manufacturer's production volume variance is most likely to have been caused by:

D. Temporary employment of workers with lower skill levels than originally anticipated.

Explanation:

a) Data and Calculations:

Estimated practical capacity = 90,000 machine hours

Machine hours per unit = 2

Estimated production units based on capacity = 45,000 (90,000/2)

                                                   Budgeted          Actual

Variable overhead =                 $200,000      $240,000

Actual fixed overhead =           $450,000      $442,000

Machine hours                             90,000           88,000

Units produced                            45,000           42,000

Estimated units to be produced based on standard machine hour

= 44,000 units (88,000/2)

Variance between standard units to be produced and actual = 2,000 (44,000 - 42,000) Unfavorable