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The 20YY results for Weather Factory are as follows:
The sales budget for 20YY was set at 4,800 units selling at $35 each.
The standard absorption cost per football was $21, and the standard contribution per football was $18.
The actual results for 20YY were as follows:
5,100 footballs were sold for $168,300, and non-production overheads were $34,500.
The variances calculated were as follows:Sales volume variance 4,200 (Favourable)
Sales volume contribution variance 5,400 (Favourable)
Sales price variance 10,200 (Adverse)
Materials price variance 1,575 (Favourable)
Materials price variance 450 (Adverse)
Labour rate variance 10,400 (Favourable)
Labour efficiency variance 1,200 (Adverse)
Variable production overhead expenditure variance 2,080 (Adverse)
Variable production overhead efficiency variance 200 (Adverse)
Fixed production overhead expenditure variance 560 (Adverse)
Fixed production overhead volume variance 1,200 (Favourable)Hello tutor,
in this question, they calculated Actual fixed production overheads of $ 19,760
I tried to figure out the way to come to this result, but could not make it. Can you please explain how we can come to that result?
Thank you!
Surely the answer in your book explains how they arrived at the answer?
Although check that you have copied out the expenditure variance of 560 correctly.
Hello tutor. Thank you for your reply.
The question of the exercise above is “Prepare the marginal costing operating statement.”
No, following is all they wrote in the answer: ”
Adverse Note
Actual fixed production overheads (19,760) W4
[W4] Actual fixed production overheads = $19,760″
They did not explain further.
Thank you tutor.
Assuming that you have copied everything correctly then I think there is a mistake in the question or answer.
The budgeted fixed overheads were 4,800 x $3 = $14,400
The fixed overhead expenditure variance is 560 adverse, therefore the actual fixed overheads should be $14,960.
Thank you tutor for your reply. In your solution, is the $3 is the difference between the standard absorption cost per football of $21 and the standard contribution per football of $18?
Ooops – that was my mistake through reading too fast :-(. Sorry!
The marginal cost is 35 – 18 = $17 per unit.
The absorption cost is $21 per unit.
So the fixed overhead absorption rate is $4 per unit.The total budgeted fixed overheads are therefore 4,800 x $4 = $19,200.
So the actual fixed overheads are 19,200 + 560 = $19,760
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