Question

Use the following data for questions 25 thru 31:

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed based on planned activity of 1,800 core tests:

(Standard Hours or Quantity = SH/Q, Standard Price or Rate = SP/R, Price Per Unit = PP/U).

Direct Materials: SH/Q = 3 pounds, SP/R = $0.75 per pound, PP/U = $2.25
Direct Labor: SH/Q = 0.4 hours, SP/R = $12 per hour, PP/U = $4.80
Variable Manufacturing Overhead: SH/Q = 0.4 hours, SP/R = $9 per hour, PP/U = $3.60
Fixed Manufacturing Overhead: SP/R = $6,800

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of standard direct labor-hours. The following events occurred during March:

• 7,200 pounds of sand were purchased at a cost of $6,120.
• 7,200 pounds of sand were used for core tests.
• 840 actual direct labor-hours were worked at a cost of $8,610.
• Actual variable manufacturing overhead incurred was $7,240.
• Actual fixed manufacturing overhead incurred was $6,500.

The variable manufacturing overhead efficiency variance for March is:
A. $360 unfavorable
B. $360 favorable
C. $40 unfavorable
D. $40 favorable

Answer 1

Spreading the overhead is about allocating fixed costs over an increasing number of units, leading to a decrease in average fixed cost per unit produced. The average fixed cost curve would therefore trend downwards as production increases.

Step-by-step explanation:

The concept of spreading the overhead refers to the idea of distributing fixed costs across increasing units of production. Fixed costs, like rent or salaries, don't change with the level of production. When you divide a constant fixed cost by a growing number of output units, you get a decreasing average fixed cost per unit.

For example, if the fixed cost is $1,000, the average fixed cost for 1 unit of output would be $1,000. However, for 100 units, it would be only $10 per unit. As production grows, the average fixed cost curve will trend downward due to this spreading of overhead across more units, illustrating economies of scale.