Croissant Company's standard fixed overhead cost is $6 per direct labor hour based on budgeted fixed costs of $600,000. The standard allows one direct labor hour per unit. During the current year, Crawford produced 110,000 units of product, (within the relevant range of activity) incurred $630,000 of fixed overhead costs, and recorded 212,000 actual hours of direct labor.
What is Croissant's fixed overhead spending variance for the current year?
A)$60,000 (F)
B)$24,000 (F)
C)$30,000 (U)
D)$36,000 (U)

Question

Quizplus · Accepted Answer

Fixed overhead spending variance = Actual fixed overhead costs - Budgeted fixed overhead costs

Actual fixed overhead costs = $630,000
Budgeted fixed overhead costs = (Budgeted fixed overhead cost per hour) x (Actual hours of direct labor)
Budgeted fixed overhead cost per hour = $6
Actual hours of direct labor = 212,000

Budgeted fixed overhead costs = $6 x 212,000 = $1,272,000

Fixed overhead spending variance = $630,000 - $1,272,000 = $642,000 (U)
This means that the actual fixed overhead costs were $642,000 more than the budgeted fixed overhead costs.

However, we only want to know the fixed overhead spending variance per unit of product, so we need to divide the total variance by the number of units produced:

Fixed overhead spending variance per unit = Total fixed overhead spending variance / Number of units produced
Fixed overhead spending variance per unit = $642,000 / 110,000 units
Fixed overhead spending variance per unit = $5.84 (U)

Therefore, the fixed overhead spending variance per unit is $5.84 (U), which means that the actual fixed overhead costs per unit were $5.84 more than the budgeted fixed overhead costs per unit. Option C, $30,000 (U), is the closest to this result, so it is the best choice.

Croissant Company's Standard Fixed Overhead Cost Is $6 Per Direct