Question

Roberson Corporation manufactured 30,000 ice chests during September. The variable overhead cost-allocation base is $11.25 per machine-hour. The following variable overhead data pertain to September:

Actual Budgeted
Production 30,000 units 24,000 units
Machine-hours 15,000 hours 10,800 hours
Variable overhead cost per machine-hour: $11.00 $11.25

26) What is the actual variable overhead cost?
A) $121,500
B) $151,875
C) $165,000
D) $168,750

27) What is the flexible-budget amount?
A) $121,500
B) $151,875
C) $165,000
D) $168,750

28) What is the variable overhead spending variance?
A) $3,750 favorable
B) $16,875 unfavorable
C) $13,125 unfavorable
D) $30,375 unfavorable

29) What is the variable overhead efficiency variance?
A) $3,750 favorable
B) $16,875 unfavorable
C) $13,125 unfavorable
D) $30,375 unfavorable

Answer 1

To find the profit-maximizing quantity of output, calculate total revenue, marginal revenue, total cost, and marginal cost for each unit produced by AAA Aquarium Co. and determine the point where marginal revenue equals marginal cost. Average fixed cost decreases with more output, illustrating "spreading the overhead," while average variable cost approaches average total cost as output rises.

Step-by-step explanation:

The AAA Aquarium Co.'s decision on the profit-maximizing quantity of output involves analyzing total revenue, marginal revenue, total cost, and marginal cost. To calculate these values for each output level (from one to five units), we need to consider the fixed costs of production and the varying total variable costs provided. After these calculations, we determine the profit-maximizing quantity by comparing marginal cost and marginal revenue, choosing the quantity at which marginal revenue exceeds marginal cost, but not beyond the point where they are equal.

As for the average fixed cost, with a fixed cost of $1,000, it decreases as quantity increases, illustrating "spreading the overhead". This means that on a per-unit basis, the cost decreases when distributed over a larger number of units. Similarly, average variable cost will always be lower than the average total cost, which includes both average variable and fixed costs. However, average variable cost approaches average total cost as output increases, due to the diminishing impact of fixed costs at higher levels of production.