Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 22

Sipple Furniture’s master budget for the year includes $360,000 for fixed supervisory salaries. Practical capacity, which is used to set the fixed overhead allocation rate, is 500 units per month. Supervisory salaries are expected to be incurred uniformly throughout the year. During August, the company produced 250 units, incurred production supervisory salaries of $29,000, and reported underapplied fixed overhead of $14,000 for supervisory salaries. What is Sipple Furniture’s supervisory salaries budget (spending) variance for August?

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Cost Variance and Capacity Management:

Cost variance (CV), otherwise called spending fluctuation, is the distinction between the real expense and the planned expense, or what you expected to spend versus what you really spent.

Capacity management refers to the demonstration of guaranteeing a business amplifies its possible exercises and creation yield—consistently, under all conditions. The limit of a business quantifies how much organizations can accomplish, produce, or sell inside a given timespan.