Final answer:
The fixed overhead variance at Point Company is an unfavorable $300, calculated by subtracting the actual fixed overhead costs of $4,800 from the standard fixed overhead cost of $4,500 for 8,000 units produced. The average fixed cost curve slopes downward as output increases, which illustrates the concept of 'spreading the overhead.'
Step-by-step explanation:
The student is asking about the calculation of the fixed overhead variance at Point Company using the standard costing method. To calculate this, we need to determine the standard fixed overhead allocated to the units produced and compare it with the actual fixed overhead costs incurred.
Standard fixed overhead rate per direct labor hour = Budgeted fixed overhead / Normal annual capacity
= $6,750 / 3,000 hours
= $2.25 per hour
Standard fixed overhead cost allocated for the units produced: since the product requires 0.25 hours to produce one unit, for 8,000 units produced
= 0.25 hour/unit × 8,000 units × $2.25/hour
= $4,500
The fixed overhead variance is then calculated as the difference between the standard fixed overhead and the actual fixed overhead costs.
= Standard fixed overhead cost - Actual fixed overhead costs
= $4,500 - $4,800 = -$300
Thus, there's a fixed overhead variance of $300, which is unfavorable because the actual costs were higher than the standard costs allocated.
In terms of the part explaining what "spreading the overhead" means, as the quantity of output increases, the average fixed cost tends to decrease because the same amount of fixed cost is spread over more units. The average fixed cost curve will thus slope downward as production increases, indicating that per-unit overhead cost decreases with higher output levels.