Question

Which of the following is used in the computation of the fixed overhead budget variance?

Actual Fixed Overhead
Budgeted Fixed Overhead
Fixed Overhead Applied to Production

A. Yes Yes Yes

B. Yes Yes No

C. Yes No Yes

D. Yes No No

E. No Yes Yes

Answer 1

The fixed overhead budget variance involves both the actual and budgeted fixed overhead costs, but not the fixed overhead applied to production. The correct option for the computation is 'Yes Yes No'. The average fixed cost curve is shaped like a hyperbola that decreases as output increases.

Step-by-step explanation:

Fixed costs, commonly referred to as overhead, do not vary with the level of production. When we divide the total fixed cost by the quantity of output produced, we obtain the average fixed cost (AFC). For example, if a fixed cost is $1,000 and the production level varies, the AFC curve would be shaped like a hyperbola, decreasing as production increases. This illustrates the concept of spreading the overhead, which means that as more units are produced, the fixed cost per unit decreases. It's important for businesses to understand the behavior of fixed costs to manage expenses and set prices effectively.

When analyzing the fixed overhead budget variance, the computation involves the actual fixed overhead, the budgeted fixed overhead, but not the fixed overhead applied to production. Therefore, the correct answer to the question would be:
B. Yes Yes No