Answer (D) is correct . The volume variance (VV) arises from the difference between budgeted fixed O/H and the fixed O/H applied at the standard rate based on the standard input allowed for actual output. The O/H rate is $15 per machine hour ($480,000 ÷ 32,000). VV = Budgeted Fixed O/H – Applied Fixed O/H $6,360 = $480,000 – ($15 × AH) $15 × AH = $480,000 – $6,360 AH = $473,640 ÷ $15 AH = 31,576
Answer (A) is incorrect because Assuming the volume variance was favorable results in 32,425.
Answer (B) is incorrect because The actual machine hours can be found by using the following equation: Volume Variance = Budgeted Fixed O/H – Applied Fixed O/H. The applied fixed O/H is equal to the O/H rate multiplied by the actual hours. The O/H rate is found by dividing the budgeted O/H ($480,000) by the budgeted hours (32,000). Actual machine hours are 31,576.
Answer (C) is incorrect because The budgeted machine hours equal 32,000.
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