A hypothetical business utilizes standard costs for cost control and internal reporting. Fixed costs are budgeted at
Question:
A hypothetical business utilizes standard costs for cost control and internal reporting. Fixed costs are budgeted at $125,000 per month at a normal operating level of 25,000 units of production. During October, actual fixed costs were $122,000, and actual production was 24,000 units.
Please solve the following questions listed below with formulas and explanations:
A. Determine the fixed overhead budget variances.
B. Assume the company applied fixed overhead to production on a per-unit basis. Determine the fixed overhead volume variance.
C. Was the fixed overhead budget variance from part (A) affected due to the firm operating below the normal activity level of 25,000 units?
D. Explain some plausible causes for the volume variance computed in part (B). How is reporting of the volume variance useful to managers?
Expert Answer:
A Fixed overhead budget variance Actual fixed overhead Budgeted fixed overhead 122000 125000 3000 B ... View the full answer
