Point Company uses the standard costing method. The company's product normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor hours, and budgeted fixed overhead costs for the year were $6,750. During the year, the company produced and sold 8,000 units. Actual fixed overhead costs were $4,800. Compute the fixed overhead variance.

the fixed overhead variance is $1,660 (favorable)

Explanation:

The fixed overhead variance results from Fixed Overhead Expenditure (Spending) variance and Fixed Overhead Volume variance.

Expenditure Variance = Actual Fixed Overheads - Budgeted Fixed Overheads

                                     = $4,800 - $6,750

                                     = $1,950 (favorable)

Volume Variance = Budgeted overhead at actual activity - Budgeted fixed overhead

                              = ($6,750 ÷ 3,000/0.25) x 8,000 units - $4,800

                              = $300 (unfavorable)

Total Variance = Expenditure Variance + Volume Variance

                         = $1,950 (favorable) + $300 (unfavorable)

                         = $1,660 (favorable)

Conclusion :

the fixed overhead variance is $1,660 (favorable)

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