Final answer:
The statement is true(1); fixed cost flexible budget variance is also known as fixed cost spending variance. This variance measures deviations in fixed costs from what was budgeted, and it's an important part of cost control within businesses. Spreading the overhead means allocating fixed costs over more units produced, thereby reducing the average fixed cost per unit.
Step-by-step explanation:
The statement "The fixed cost flexible budget variance is also called the fixed cost spending variance" is true(1). Fixed costs, often referred to as "overhead", are costs that do not change with the level of production, such as rent or the cost of machinery. When a company sets up a flexible budget, it allows for changes in budget based on changes in activity levels, but fixed costs should remain constant. Any deviation from this expected amount is classified as a variance. When it comes to fixed costs, the variance is specifically termed as the fixed cost spending variance because it tracks any overspending or underspending against what was budgeted for fixed costs.
For example, if a business had budgeted $2,000 for fixed costs during a period, but actually spent $2,200, the fixed cost spending variance would be an unfavorable $200. This variance is an essential component in management accounting as it helps in evaluating how well the business is controlling its fixed costs.
Furthermore, when discussing fixed costs and their relationship to output, the concept of "spreading the overhead" comes into play. This refers to the allocation of fixed costs over the units produced. If the fixed cost is $1,000 and the quantity of output produced increases, the average fixed cost decreases. Thus, the average fixed cost curve will show a downward slope, demonstrating that as production goes up, the cost per unit goes down.