Cost Accounting Quiz: Fixed Overhead Variances
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Fixed Overhead VariancesQuestion 1 of 20

A significant unfavorable fixed overhead volume variance indicates which of the following?

The company paid more than planned for fixed cost items like factory rent or salaried supervision.
Production was less than the denominator activity level used to set the standard overhead rate.
Workers were inefficient, using more direct labor hours than the standard for the units produced.
The total of all manufacturing overhead variances will be unfavorable for the period.
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Cost Accounting Quiz

Cost Accounting Quiz: Fixed Overhead Variances

Practice Fixed Overhead Variances in Cost Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Fixed Overhead Variances, giving you a quick way to practice the rules, question types, and explanations that matter most for Cost Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A significant unfavorable fixed overhead volume variance indicates which of the following?

  1. The company paid more than planned for fixed cost items like factory rent or salaried supervision.
  2. Production was less than the denominator activity level used to set the standard overhead rate. (correct answer)
  3. Workers were inefficient, using more direct labor hours than the standard for the units produced.
  4. The total of all manufacturing overhead variances will be unfavorable for the period.
Explanation: The fixed overhead volume variance is solely a measure of capacity utilization; it compares the denominator activity level to the standard hours allowed for actual production. An unfavorable variance arises when the standard hours allowed are less than the denominator hours, meaning the plant's capacity was underutilized relative to the planned level. This variance has no connection to cost control (spending) or labor efficiency.

Question 2

Apex Industries reported actual fixed manufacturing overhead of $520,000 for the year. The company recorded a fixed overhead budget variance of $15,000 unfavorable. The predetermined fixed overhead rate was $25 per direct labor-hour, based on a denominator level of 20,000 direct labor-hours. What was the budgeted fixed overhead for the year?

  1. $485,000
  2. $500,000
  3. $505,000 (correct answer)
  4. $535,000
Explanation: The fixed overhead budget (or spending) variance is the difference between actual fixed overhead and budgeted fixed overhead. The formula is: Budget Variance = Actual FOH - Budgeted FOH. An unfavorable variance means actual costs were higher than budgeted. So, $15,000 U = $520,000 - Budgeted FOH. Rearranging the formula to solve for Budgeted FOH gives: Budgeted FOH = $520,000 - $15,000 = $505,000. The denominator level and rate are extraneous information for this specific question.

Question 3

Stark Manufacturing uses a standard costing system and provides the following information for June:

  • Budgeted fixed overhead: $120,000
  • Actual fixed overhead: $124,000
  • Denominator activity: 30,000 machine hours
  • Actual machine hours worked: 28,500 hours
  • Standard machine hours allowed for actual output: 28,000 hours

What are Stark's fixed overhead budget and volume variances for June?

  1. Budget variance, $4,000 Favorable; Volume variance, $8,000 Unfavorable.
  2. Budget variance, $4,000 Unfavorable; Volume variance, $8,000 Unfavorable. (correct answer)
  3. Budget variance, $4,000 Unfavorable; Volume variance, $6,000 Unfavorable.
  4. Budget variance, $1,000 Unfavorable; Volume variance, $8,000 Unfavorable.
Explanation: Budget Variance = Actual FOH - Budgeted FOH = $124,000 - $120,000 = $4,000 Unfavorable. Volume Variance calculation:
  1. Predetermined FOH Rate = Budgeted FOH / Denominator Activity = $120,000 / 30,000 MH = $4.00 per MH.
  2. Applied FOH = Standard Hours Allowed × Rate = 28,000 MH × $4.00/MH = $112,000.
  3. Volume Variance = Budgeted FOH - Applied FOH = $120,000 - $112,000 = $8,000 Unfavorable.

Question 4

A company has budgeted annual fixed overhead of $750,000 and applies overhead at a rate of $30 per machine hour. During the year, actual fixed overhead was $750,000. The fixed overhead volume variance was $60,000 unfavorable. What were the standard machine hours allowed for the actual output?

  1. 23,000 hours (correct answer)
  2. 25,000 hours
  3. 27,000 hours
  4. 29,000 hours
Explanation: The problem requires working backwards from the volume variance to find the standard hours allowed (SH).
  1. The volume variance formula is: Volume Variance = Budgeted FOH - Applied FOH.
  2. Applied FOH is calculated as: Standard Rate × Standard Hours Allowed (SH).
  3. We are given: Budgeted FOH = $750,000; Volume Variance = $60,000 Unfavorable; Standard Rate = $30/hour.
  4. An unfavorable volume variance means Budgeted FOH > Applied FOH. So, +$60,000 = $750,000 - Applied FOH.
  5. Solving for Applied FOH: Applied FOH = $750,000 - $60,000 = $690,000.
  6. Now, solve for SH: Applied FOH = Rate × SH => $690,000 = $30 × SH.
  7. SH = $690,000 / $30 = 23,000 hours.

Question 5

A company that uses a highly automated process allocates fixed overhead based on machine hours. For the current year, the denominator level of activity was set at 40,000 machine hours, which represents 80% of the plant's practical capacity. During the year, the company's actual production corresponded to a standard of 35,000 machine hours.

Assuming the company's actual fixed costs were exactly as budgeted, which of the following statements about the fixed overhead variances is correct?

  1. The budget variance is zero, and the volume variance is unfavorable. (correct answer)
  2. The budget variance is unfavorable, and the volume variance is zero.
  3. The budget variance is zero, and the volume variance is favorable.
  4. Both the budget variance and the volume variance are unfavorable.
Explanation: The budget variance is the difference between actual and budgeted fixed costs. Since they were equal, the budget variance is zero. The volume variance arises from the difference between the denominator activity level (40,000 MH) and the standard hours allowed for actual output (35,000 MH). Because the standard hours allowed are less than the denominator level, fixed overhead was under-applied, resulting in an unfavorable volume variance. This signifies that the company operated at a lower capacity level than planned.

Question 6

A company's flexible budget formula for total manufacturing overhead is $250,000 per month plus $12.50 per machine hour. The company uses machine hours as its allocation base for fixed overhead, with a denominator level of 25,000 machine hours.

If the company's actual fixed overhead for the month was $262,000, what is the fixed overhead budget variance?

  1. $0
  2. $12,000 Unfavorable (correct answer)
  3. $12,000 Favorable
  4. $12,500 Unfavorable
Explanation: The flexible budget formula separates costs into fixed and variable components. The fixed component is the constant amount, which is $250,000 per month. This represents the budgeted fixed overhead. The budget variance is the difference between this budgeted amount and the actual fixed overhead incurred. Budget Variance = Actual FOH - Budgeted FOH = $262,000 - $250,000 = $12,000. Since actual costs exceeded the budget, the variance is Unfavorable.

Question 7

A company sets its denominator activity level equal to the master budget production forecast for the year. An unexpected economic boom led the company to produce 20% more units than forecasted in the master budget. If actual fixed costs were equal to budgeted fixed costs, which of the following statements is true regarding the fixed overhead volume variance?

  1. The volume variance will be favorable. (correct answer)
  2. The volume variance will be unfavorable.
  3. The volume variance will be zero.
  4. The volume variance cannot be determined without dollar amounts.
Explanation: The volume variance arises from the difference between the denominator activity level and the standard hours allowed for actual production. Here, the denominator level is based on the master budget forecast. Since actual production was 20% higher than the forecast, the standard hours allowed for actual production will be higher than the denominator hours. This means more fixed overhead was applied to production than was budgeted (Applied>Applied > Budgeted). When applied overhead exceeds budgeted overhead, the result is a favorable volume variance, indicating better-than-planned utilization of capacity.

Question 8

A company applied $450,000 of fixed manufacturing overhead to its production during the year. The fixed overhead volume variance was $25,000 favorable. What was the amount of budgeted fixed overhead for the year?

  1. $425,000 (correct answer)
  2. $450,000
  3. $475,000
  4. Cannot be determined from the information given.
Explanation: The formula for the volume variance is: Volume Variance = Budgeted FOH - Applied FOH. A favorable variance means that applied FOH was greater than budgeted FOH. Let's denote a favorable variance with a negative sign. -$25,000 = Budgeted FOH - $450,000. Solving for Budgeted FOH: Budgeted FOH = $450,000 - $25,000 = $425,000.

Question 9

For the year ended December 31, a company provides the following fixed overhead data:

  • Actual fixed overhead incurred: $210,000
  • Budgeted fixed overhead: $200,000
  • Applied fixed overhead: $185,000

What is the total under- or overapplied fixed overhead for the year?

  1. $15,000 underapplied
  2. $25,000 underapplied (correct answer)
  3. $10,000 underapplied
  4. $15,000 overapplied
Explanation: Total under- or overapplied overhead is the difference between the actual overhead incurred and the overhead applied to production. Total Variance = Actual FOH - Applied FOH = $210,000 - $185,000 = $25,000. Since actual costs are greater than the amount applied, the overhead is underapplied. Alternatively, one could sum the individual variances: Budget Variance = $210,000 - $200,000 = $10,000 Unfavorable. Volume Variance = $200,000 - $185,000 = $15,000 Unfavorable. Total Variance = $10,000 U + $15,000 U = $25,000 Unfavorable (Underapplied).

Question 10

A company is setting its budget for the upcoming year and is considering raising its denominator activity level from 40,000 to 50,000 direct labor-hours, while budgeted fixed overhead costs are expected to remain at $400,000. How would this change affect the predetermined fixed overhead rate and the fixed overhead volume variance, assuming actual production requires 45,000 standard direct labor-hours?

  1. The rate would increase, and the volume variance would become unfavorable.
  2. The rate would decrease, and the volume variance would become more favorable.
  3. The rate would increase, and the volume variance would change from unfavorable to favorable.
  4. The rate would decrease, and the volume variance would change from favorable to unfavorable. (correct answer)
Explanation: First, the effect on the rate: The rate is Budgeted FOH / Denominator Hours. Increasing the denominator from 40,000 to 50,000 hours will cause the rate to decrease (from $10/hr to $8/hr). Second, the effect on the volume variance: Original situation: Denominator = 40,000; Standard hours = 45,000. Since standard hours > denominator, the variance is favorable. New situation: Denominator = 50,000; Standard hours = 45,000. Since standard hours < denominator, the variance becomes unfavorable. Therefore, the rate decreases, and the variance changes from favorable to unfavorable.

Question 11

Kilo Company's fixed overhead budget variance was zero for the year. The fixed overhead volume variance was $40,000 favorable. The denominator activity level was 20,000 machine hours, and the standard is 2 machine hours per unit. Budgeted fixed overhead was $200,000. How many units were actually produced during the year?

  1. 10,000 units
  2. 8,000 units
  3. 12,000 units (correct answer)
  4. 24,000 units
Explanation: This problem requires working backwards to find the number of units produced.
  1. Find Applied FOH. Volume Variance = Budgeted FOH - Applied FOH. A favorable variance means Applied > Budgeted. So, -$40,000 = $200,000 - Applied FOH. Applied FOH = $240,000.
  2. Find the predetermined FOH rate. Rate = Budgeted FOH / Denominator Hours = $200,000 / 20,000 MH = $10 per MH.
  3. Find the standard hours allowed (SH). Applied FOH = Rate * SH. $240,000 = $10/MH * SH. SH = 24,000 hours.
  4. Find the number of units produced. SH = Actual Units * Standard hours/unit. 24,000 hours = Actual Units * 2 hours/unit. Actual Units = 12,000 units.

Question 12

For the month of August, Nova Corp. gathered the following data:

  • Static budget fixed overhead: $480,000, based on a denominator level of 60,000 direct labor-hours (DLH).
  • Actual results: 40,000 units were produced, and 62,000 DLH were worked.
  • Standard: 1.5 DLH are allowed per unit.
  • Actual fixed overhead incurred: $495,000.

What is Nova Corp.'s fixed overhead budget variance for August?

  1. $1,000 Favorable
  2. $15,000 Favorable
  3. $16,000 Unfavorable
  4. $15,000 Unfavorable (correct answer)
Explanation: The fixed overhead budget variance is the difference between actual fixed overhead costs and the budgeted fixed overhead costs from the static (or flexible) budget. The amount of fixed overhead in the flexible budget does not change with the activity level. Budgeted Fixed Overhead = $480,000. Actual Fixed Overhead = $495,000. Budget Variance = Actual FOH - Budgeted FOH = $495,000 - $480,000 = $15,000. Since actual costs exceeded the budget, the variance is Unfavorable. All other information about production levels and hours is irrelevant for calculating the budget variance.

Question 13

A company has provided the following data for its most recent year of operations:

  • Budgeted production: 20,000 units
  • Denominator activity level: 20,000 units
  • Actual production: 18,500 units
  • Standard machine hours per unit: 3.0 hours
  • Budgeted fixed overhead: $360,000
  • Actual fixed overhead: $370,000

Which of the following statements is correct regarding the company's fixed overhead variances?

  1. The fixed overhead volume variance is $27,000 unfavorable. (correct answer)
  2. The fixed overhead budget variance is $10,000 favorable.
  3. Total fixed overhead was overapplied by $17,000.
  4. The volume variance is unfavorable because actual spending exceeded the budget.
Explanation: Let's calculate both variances. Budget Variance = Actual FOH - Budgeted FOH = $370,000 - $360,000 = $10,000 Unfavorable. (Choice B is incorrect). Volume Variance:
  1. Predetermined Rate = $360,000 / (20,000 units * 3.0 MH/unit) = $360,000 / 60,000 MH = $6.00 per MH.
  2. Standard Hours Allowed = 18,500 units * 3.0 MH/unit = 55,500 MH.
  3. Applied FOH = 55,500 MH * $6.00/MH = $333,000.
  4. Volume Variance = Budgeted FOH - Applied FOH = $360,000 - $333,000 = $27,000 Unfavorable. (Choice A is correct). Total Variance = $10,000 U + $27,000 U = $37,000 Underapplied. (Choice C is incorrect). Choice D provides incorrect reasoning for the volume variance.

Question 14

For the month of May, a company reported that its total fixed overhead was overapplied by $7,000. During the same period, the company had a fixed overhead budget variance of $3,000 unfavorable. What was the company's fixed overhead volume variance for May?

  1. $4,000 Favorable
  2. $4,000 Unfavorable
  3. $10,000 Favorable (correct answer)
  4. $10,000 Unfavorable
Explanation: Total Over/Underapplied Overhead is the sum of the budget and volume variances. Overapplied overhead is a net favorable variance. Let F be favorable (-) and U be unfavorable (+). Total Variance = Budget Variance + Volume Variance -7,000(Overapplied)=+7,000 (Overapplied) = +3,000 (Unfavorable) + Volume Variance Solving for the Volume Variance: Volume Variance = -$7,000 - 3,000=−3,000 = -10,000. A negative result indicates a favorable variance. Therefore, the volume variance is $10,000 Favorable.

Question 15

Company A sets its denominator level for calculating its fixed overhead rate at practical capacity. Company B, a direct competitor with identical cost structures and production technology, sets its denominator level at the master-budget volume for the year. In a year where both companies produce at a level significantly below practical capacity but equal to the master-budget volume, how would Company A's fixed overhead volume variance compare to Company B's?

  1. Company A's volume variance would be zero, while Company B's would be unfavorable.
  2. Company A's volume variance would be unfavorable, while Company B's would be zero. (correct answer)
  3. Both companies would report identical unfavorable volume variances.
  4. Both companies would report a volume variance of zero.
Explanation: For Company B, the denominator level (master-budget volume) is equal to the standard hours allowed for actual production. Therefore, budgeted fixed overhead equals applied fixed overhead, and the volume variance is zero. For Company A, the denominator level (practical capacity) is higher than the standard hours allowed for actual production. This means budgeted fixed overhead will be greater than applied fixed overhead, resulting in an unfavorable volume variance. This variance highlights the cost of Company A's unused capacity.

Question 16

A factory manager's performance is being evaluated. The company experienced a large unfavorable fixed overhead volume variance for the period. Which of the following is the most likely cause and the most appropriate conclusion regarding the manager's performance?

  1. Fixed costs such as depreciation and insurance were higher than expected, indicating poor cost control by the manager.
  2. The production department used more machine hours than standard for the units produced, indicating operational inefficiency under the manager's control.
  3. Market demand for the company's product was lower than forecasted, leading to lower production levels, a factor largely outside the manager's control. (correct answer)
  4. The purchasing department paid higher prices for variable overhead items, which is not the responsibility of the factory manager.
Explanation: The fixed overhead volume variance is driven by the level of production relative to the denominator level. An unfavorable variance means production was lower than the denominator level. This is often caused by lower-than-expected sales demand, which is a marketing or general economic issue, not typically something the factory manager can control. The other options describe a budget variance (A), a variable overhead efficiency variance (B), or are irrelevant to fixed overhead (D).

Question 17

A company reports the following variance information for its fixed overhead:

  • Budget variance: $8,000 Favorable
  • Volume variance: $20,000 Unfavorable
  • Predetermined overhead rate: $40 per machine hour
  • Actual fixed overhead costs: $392,000

Based on this information, what was the denominator level of activity in machine hours?

  1. 9,800 machine hours
  2. 10,500 machine hours
  3. 9,600 machine hours
  4. 10,000 machine hours (correct answer)
Explanation: This requires a multi-step calculation:
  1. First, find the budgeted fixed overhead (FOH). Budget Variance = Actual FOH - Budgeted FOH. -$8,000 = $392,000 - Budgeted FOH Budgeted FOH = $392,000 + $8,000 = $400,000.
  2. Next, use the budgeted FOH and the predetermined rate to find the denominator activity level (DH). Predetermined Rate = Budgeted FOH / DH $40 = $400,000 / DH DH = $400,000 / $40 = 10,000 machine hours.

Question 18

A company's standard costing system for manufacturing overhead includes a fixed overhead efficiency variance, which is always recognized as zero. The following information is available for July:

  • Budgeted fixed overhead: $150,000
  • Denominator machine hours: 30,000
  • Standard machine hours allowed for actual output: 31,000
  • Actual machine hours worked: 31,500
  • Actual fixed overhead incurred: $146,000

What are the company's fixed overhead budget and volume variances for July?

  1. Budget variance, $4,000 Unfavorable; Volume variance, $5,000 Unfavorable.
  2. Budget variance, $4,000 Favorable; Volume variance, $7,500 Favorable.
  3. Budget variance, $4,000 Favorable; Volume variance, $2,500 Unfavorable.
  4. Budget variance, $4,000 Favorable; Volume variance, $5,000 Favorable. (correct answer)
Explanation: The information about the efficiency variance is extraneous; in a 2- or 3-variance analysis, the fixed overhead efficiency variance is zero. Actual machine hours are also irrelevant for these two variances. Budget Variance = Actual FOH - Budgeted FOH = $146,000 - 150,000=−150,000 = -4,000, which is $4,000 Favorable. Volume Variance:
  1. Predetermined FOH Rate = Budgeted FOH / Denominator Hours = $150,000 / 30,000 MH = $5 per MH.
  2. Applied FOH = Standard Hours Allowed × Rate = 31,000 MH × $5/MH = $155,000.
  3. Volume Variance = Budgeted FOH - Applied FOH = $150,000 - 155,000=−155,000 = -5,000, which is $5,000 Favorable.

Question 19

Gamma Manufacturing uses machine hours to apply fixed overhead and has established the following standards:

• Annual budgeted fixed overhead: $960,000 • Normal annual capacity: 32,000 machine hours • Standard fixed overhead rate: $30 per machine hour

For the month of April, the company recorded: • Actual machine hours: 2,500 • Budgeted machine hours for April: 2,667 • Actual fixed overhead costs: $81,200

Refer to the data above. What is the fixed overhead volume variance for April, and what does it indicate about capacity utilization?

  1. $1,200 favorable indicating efficient use of machine capacity during the production period
  2. $5,000 unfavorable indicating underutilization relative to the budgeted activity level for the month
  3. $5,010 unfavorable indicating that actual hours worked were below normal monthly capacity expectations (correct answer)
  4. $6,200 unfavorable indicating significant underabsorption of fixed costs relative to planned operations
Explanation: When analyzing fixed overhead variances, you need to understand that the volume variance specifically measures the difference between budgeted and applied fixed overhead, revealing capacity utilization relative to the normal baseline used to set the standard rate. The fixed overhead volume variance calculation requires three components: the standard rate ($30/hour), actual machine hours (2,500), and normal capacity hours. Since normal annual capacity is 32,000 hours, normal monthly capacity equals $32,000÷12=2,66732,000 ÷ 12 = 2,667 hours.Thevolumevarianceis:hours. The volume variance is: (2,500 - 2,667) × \30 = -167 × $30 = $5,010 unfavorable. This unfavorable result indicates actual hours fell short of normal monthly capacity expectations. Answer A incorrectly calculates $1,200 and misinterprets the variance as measuring efficiency rather than capacity utilization relative to normal levels. Answer B uses the wrong baseline by comparing actual hours (2,500) to budgeted hours (2,667) rather than to normal capacity, yielding $5,000 unfavorable. While this captures monthly underutilization, it doesn't reflect the standard rate's foundation. Answer D appears to incorrectly combine variances or use actual overhead costs in the calculation, producing an inflated $6,200 figure. Remember that fixed overhead volume variance always compares actual activity to the normal capacity level used to establish the predetermined rate, not to current period budgets. This variance indicates whether you're operating above or below the activity level assumed when setting standard costs, helping assess long-term capacity utilization patterns.

Question 20

Pinnacle Manufacturing has the following fixed overhead information for the quarter ended March 31:

• Budgeted fixed overhead: $180,000 • Normal quarterly production: 15,000 units • Standard fixed overhead rate: $12 per unit • Actual production: 14,200 units • Actual fixed overhead incurred: $184,500

Based on the information provided, what is the fixed overhead budget variance for Pinnacle Manufacturing?

  1. $4,500 unfavorable representing excess spending compared to the original budget for the period (correct answer)
  2. $4,100 unfavorable representing the combination of spending inefficiencies and production volume shortfalls
  3. $9,600 unfavorable representing underabsorption due to producing fewer units than normal capacity
  4. $14,100 unfavorable representing the total variance from standard performance across all overhead categories
Explanation: The fixed overhead budget variance compares actual fixed overhead to budgeted fixed overhead: $184,500 - $180,000 = $4,500 unfavorable. This variance measures only the spending aspect (actual vs. budgeted), not production volume effects. Choice B incorrectly combines different variance types. Choice C describes the volume variance, not budget variance. Choice D represents total variance, not just budget variance.