Question

Which of the following is used in the computation of the fixed overhead budget variance?

1) Actual Fixed Overhead, Budgeted Fixed Overhead, Fixed Overhead Applied to Production
2) Actual Fixed Overhead, Budgeted Fixed Overhead
3) Actual Fixed Overhead, Fixed Overhead Applied to Production
4) Actual Fixed Overhead
5) Budgeted Fixed Overhead, Fixed Overhead Applied to Production

Answer 1

The computation of the fixed overhead budget variance involves the Actual Fixed Overhead, Budgeted Fixed Overhead, and Fixed Overhead Applied to Production. Spreading the overhead means allocating fixed costs across more units of output, resulting in a downward sloping average fixed cost curve as production increases.

Step-by-step explanation:

The computation of the fixed overhead budget variance typically involves three components: Actual Fixed Overhead, Budgeted Fixed Overhead, and Fixed Overhead Applied to Production. Therefore, the answer to the student's question about the computation of the fixed overhead budget variance is 1) Actual Fixed Overhead, Budgeted Fixed Overhead, Fixed Overhead Applied to Production.

Spreading the overhead refers to the allocation of fixed costs (overhead) over a range of output. It results in a decreasing average fixed cost as production increases. For example, if the fixed cost is $1,000, as the quantity of output produced increases, the average fixed cost decreases because the same amount of fixed cost is spread over more units of output. The average fixed cost curve represents this relationship and typically shows a downward slope, demonstrating that the average fixed cost per unit falls as production expands.