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Elina [12.6K]
3 years ago
7

Point Company uses the standard costing method. The company's product normally takes 0.25 hour to produce. Normal annual capacit

y 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.
Business
1 answer:
vlabodo [156]3 years ago
4 0

Answer:

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.

<em>Expenditure Variance = Actual Fixed Overheads - Budgeted Fixed Overheads</em>

                                     = $4,800 - $6,750

                                     = $1,950 (favorable)

<em>Volume Variance = Budgeted overhead at actual activity - Budgeted fixed overhead</em>

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

                              = $300 (unfavorable)

<em>Total Variance = Expenditure Variance + Volume Variance</em>

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

                         = $1,660 (favorable)

Conclusion :

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

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