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22 November, 10:39

The following information is available for Baxter Manufacturing for April:

Actual machine hours 840

Standard machine hours allowed 900

Denominator activity (machine hours) 1,000

Actual fixed overhead costs $3,800

Budgeted fixed overhead costs $4,000

Predetermined overhead rate ($1 variable $4 fixed) $5

Is the fixed overhead price (spending) variance for April favorable or unfavorable?

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  1. 22 November, 10:40
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    Production volume variance is Unfavorable and Fixed overhead spending (budget) variance is favorable.

    Explanation:

    The formula for fixed budget variance as follows

    The Fixed overhead budget Variance = Budgeted Fixed Overhead minus Actual Fixed overhead

    = $4000 minus $3800 = $200 Favorable

    Fixed overhead spending (budget) variance is favorable.

    The formula for Production Volume Variance is as follows:

    The Production Volume Variance = Applied Fixed Overhead minus Budgeted Fixed Overhead

    = ($4 into 900) minus $4000 = $3600 minus 4000 = $400 Unfavorable

    Therefore, Production volume variance is Unfavorable.
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