A. The fixed overhead production-volume variance is the difference between the budgeted amount of fixed overhead and the amount of fixed overhead applied (standard rate × standard input for the actual level of output). If in the calculation of fixed manufacturing overhead applied the static budget amount of machine hours (22,000) were used, we would come up with an amount of $110,000 FOH applied. And the fixed overhead volume variance would be $10,000 ($110,000 - $100,000) favorable; which is incorrect. In the

calculation of fixed overhead applied, we should use the number of standard machine hours for the actuallevel of output (21,000 hours). See the correct answer for a complete explanation and information on interpreting this variance.

B. The fixed overhead production-volume variance is the difference between the budgeted amount of fixed overhead and the amount of fixed overhead applied (standard rate × standard input for the actual level of output). It is Budgeted Fixed Overhead minus Applied Fixed Overhead. This is the only time for an expense variance calculation that a budgeted cost amount comes before an actual cost amount, and yet a negative amount (actual is higher than budget) is a favorable variance.

Nanjones applies overhead based on planned machine hours using a predetermined annual rate. The amount of the planned fixed manufacturing overhead was $1,200,000 and the amount of planned machine hours were 240,000. Thus, the standard application rate for fixed manufacturing overhead was $5 ($1,200,000 ÷ 240,000). The number of planned machine hours for the actual level of output in November was 21,000. Now we can calculate the amount of applied fixed manufacturing overheads as $105,000 ($5 × 21,000). The budgeted amount of fixed manufacturing overhead is the static budget amount planned for November of $100,000. Therefore, the fixed overhead volume variance is: $100,000 - $105,000 = ($5,000) favorable. The fixed overhead production-volume variance is caused by the actual production level being different from the production level used to calculate the budgeted fixed overhead rate. It measures usage of facilities, and so it is not a comparison of actual incurred cost with budgeted cost the way other variances are. When production facilities are used more than was planned (actual is greater than budget), the variance will be favorable because the company has gotten more use from its capacity than it thought it would. When production facilities are used less than was planned (actual is less than budget), the variance is unfavorable because it means the company had unused capacity. The amount of the variance is a rough measure of the cost of the unused capacity. When the company has unused capacity, the cost for that unused capacity should not be passed on to customers in higher prices. Instead, the company should find other uses for the capacity. Management may consider developing a new product to make use of the unused capacity, renting out part of the factory to another company, taking contract work that other companies are outsourcing, or even selling the unused facilities. This variance helps management to see the cost of the unused capacity. Fortunately for Nanjones, it is not in that situation. Its production-volume variance is favorable.

C. The fixed overhead production-volume variance is the difference between the budgeted amount of fixed overhead and the amount of fixed overhead applied (standard rate × standard input for the actual level of output). It is Budgeted Fixed Overhead minus Applied Fixed Overhead. This is the only time for an expense variance calculation that a budgeted cost amount comes before an actual cost amount, and yet a negative amount (budget is lower than actual) is a favorable variance. The budgeted amount of fixed manufacturing overhead is the static budget amount planned for November of $100,000. The amount of applied fixed manufacturing overhead is $105,000 . Therefore, the fixed overhead volume variance is: $100,000 - $105,000 = ($5,000) favorable. See the answer to the correct answer choice for a full explanation and information on interpreting this variance. 

D. This answer is incorrect. See the correct answer for a complete explanation and information on interpreting this variance.