Question

Rivera Company makes customized golf shirts for sale to golf courses. Each shirt requires 1.5 hours to produce because of the customized logo for each golf course. Rivera uses direct labour-hours to allocate the overhead cost to production. Fixed overhead costs, including rent, depreciation, supervisory salaries, and other production expenses, are budgeted at $15,600 per month. The facility currently used is large enough to produce 1,300 shirts per month. During March, Rivera produced 640 shirts and actual fixed costs were $12,800. Required: Calculate the fixed overhead spending variance and indicate whether it is favourable (F) or unfavourable (U)

Answer 1

To calculate the fixed overhead spending variance, subtract the budgeted fixed costs from the actual fixed costs. In this case, the variance is -$2,800, indicating an unfavorable variance.

Step-by-step explanation:

To calculate the fixed overhead spending variance, we need to compare the actual fixed costs with the budgeted fixed costs. The formula for fixed overhead spending variance is:

Fixed overhead spending variance = Actual fixed costs - Budgeted fixed costs

In this case, the actual fixed costs were $12,800 and the budgeted fixed costs were $15,600. Plugging these values into the formula, we get:

Fixed overhead spending variance = $12,800 - $15,600 = -$2,800

Since the result is negative, the fixed overhead spending variance is unfavorable (U).