Let\'s assume that Harrison Corporation budgeted for fixed costs of $500,000, an
ID: 2460270 • Letter: L
Question
Let's assume that Harrison Corporation budgeted for fixed costs of $500,000, and production of 25,000 units. Harrison allocates fixed manufacturing overhead on the same basis as variable manufacturing overhead: machine hours. The static budget for machine hours would be 100,000 hours (25,000 units times 4 hrs. per unit). Harrison incurred actual fixed overhead of $516,000. REQUIRED: Calculate the spending variance for fixed overhead. Be sure to indicate whether the variance is favorable or unfavorable. What are some reasons for the spending variance?Explanation / Answer
Solution:
Spending variance for fixed overhead = Actual hours worked x Actual price - Actual hours worked x Standard price
Spending variance for fixed overhead =$516,000 - 100,000 x $5
Spending variance for fixed overhead = $16,000 (unfavorable)
An unfavorable fixed overhead spending variance indicates that the price of fixed overhead items cost more than budgeted.
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