In addition to other costs, Vernon Telephone Company planned to incur $414,180 o

Question

In addition to other costs, Vernon Telephone Company planned to incur $414,180 of fixed manufacturing overhead in making 351,000 telephones. Vernon actually produced 359,000 telephones, incurring actual overhead costs of $404,180. Vernon establishes its predetermined overhead rate based on the planned volume of production (expected number of telephones).

A. Calculate the predetermined overhead rate.

B. Determine the fixed cost spending variance.

C. Determine the fixed cost volume variance.

a. Predetermined overhead rate per unit b. Total fixed cost spending variance F c. Total fixed cost volume variance F

Explanation / Answer

a) Predetermine overhead rate = Estimated overhead/estimated unit

                                            = 414180/351000

Predetermine overhead rate = 1.18 per unit

b) Fixed cost spending variance = Actual budget-flexible budget

                                               = 404180-(359000*1.18)

Fixed cost spending variance = 19440 F

c) Total fixed cost volume variance = (standard volume-actual volume)standard rate

                                                  = (351000-359000)1.18

Total fixed cost volume variance = 9440 U

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