Reardan Company established a predetermined fixed overhead cost rate of $29 per

Question

Reardan Company established a predetermined fixed overhead cost rate of $29 per unit of product. The company planned to make 7,000 units of product but actually produced only 6,500 units. Actual fixed overhead costs were $212,000.

Required

Determine the fixed cost spending variance and indicate whether it is favorable (F) or unfavorable (U).

Determine the fixed cost volume variance and indicate whether it is favorable (F) or unfavorable (U).

(For all requirements, Select "None" if there is no effect (i.e., zero variance).)

Explanation / Answer

Fixed cost spending variance = Actual fixed overhead - Budgeted fixed overhead
= $212,000 - (7,000 x $29)
= $212,000 - $203,000
= $9,000 Unfavorable

Fixed Overhead Volume Variance = (Actual Activity – Normal Activity) × Fixed Overhead Application Rate
= (6,500 - 7,000) x $29
= $14,500 Unfavorable   

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