Question

A master budget calls for 3,000 units of production and budgeted fixed overhead of 6,000. Actual production was 3,500 units and total fixed overhead was 6,150. The spending variance is ______.

1) 50
2) 150
3) 100
4) 200

Answer 1

150 so this this is it because I did the math so yeah

Answer 2

The correct answer is option 2. The spending variance in the context of a master budget when actual production and actual fixed overhead are considered is $150. This implies that there was a $150 overspend in comparison to the budgeted fixed overhead. Spreading the overhead means that the average fixed cost per unit decreases as production increases.

Step-by-step explanation:

The question involves calculating a spending variance in the context of a master budget within a business setting. When we consider the actual production of 3,500 units and the total fixed overhead of $6,150 against a master budget that called for 3,000 units of production and budgeted fixed overhead of $6,000, we can determine the spending variance. The spending variance is the difference between the actual fixed overhead costs and the budgeted fixed overhead costs. In this scenario, the spending variance is calculated as follows:

$6,150 (actual fixed overhead) - $6,000 (budgeted fixed overhead) = $150

Therefore, the spending variance is $150, which corresponds to option 2 in the question provided.

The concept of “spreading the overhead” refers to the idea that as more units are produced, the fixed cost (or overhead) per unit decreases. This is illustrated through an average fixed cost curve, which typically shows a downward trend, indicating that the average fixed cost per unit goes down as production quantity increases. For example, if the fixed cost is $1,000 and the production is 100 units, the average fixed cost per unit is $10. If production increases to 200 units, the average fixed cost per unit falls to $5.