In a standard costing system using machine-hours (MHs), given denominator activity 6,300 MHs and budgeted fixed manufacturing overhead P120,960, with standard hours allowed for actual output of 6,384 MHs, what is the fixed overhead volume variance for the period (nearest peso)? A. P9,600 F B. P7,987 U C. P1,613 F D. P1,615 U

What the question is asking

Fixed overhead volume variance measures whether you produced (or operated) at a higher or lower activity level than the denominator level used to set the fixed overhead rate. It compares budgeted fixed overhead to the fixed overhead applied to output.

Compute the standard fixed overhead rate

Budgeted fixed manufacturing overhead at denominator activity:

• Fixed OH budget = P120,960
• Denominator activity = 6,300 MHs

So the standard fixed OH rate is: $$\text{Fixed OH rate} = \frac{P120{,}960}{6{,}300\text{ MH}} = P19.20\text{ per MH}$$

Apply fixed overhead to actual output (use standard hours allowed)

Use standard hours allowed for the actual output, not actual hours:

• Standard hours allowed (SH) = 6,384 MHs

Applied fixed OH: $$\text{Applied fixed OH} = 6{,}384 \times P19.20 = P122{,}572.8 \approx P122{,}573$$

Calculate the fixed overhead volume variance and label F/U

Using the common definition: $$\text{FOH volume variance} = \text{Budgeted fixed OH} - \text{Applied fixed OH}$$

$$= P120{,}960 - P122{,}573 = -P1{,}613$$

A negative result means applied exceeds budgeted, which is favorable (more volume than planned), so:

• Fixed overhead volume variance = P1,613 F

Correct choice: C.