Question

Clark Company’s master budget includes $360,000 for equipment depreciation. The master budget was prepared for an annual volume of 120,000 chargeable hours. This volume is expected to occur uniformly throughout the year. During September, Clark performed 9,000 chargeable hours and recorded $28,000 of depreciation. Required: 1. Determine the flexible-budget amount for equipment depreciation in September. 2. Compute the spending variance for the depreciation on equipment. Was the variance favorable (F) or unfavorable (U)? 3. Calculate the fixed overhead production volume variance for depreciation expense in September. Was this variance favorable (F) or unfavorable (U)?

Answer 1

1	Flexible-budget amount for equipment depreciation in September	30000	=360000/12
2	Actual depreciation for the month	28000
	Flexible-budget amount for equipment depreciation	30000
	Spending variance--depreciation on equipment	2000	Favorable (F)
3	Budgeted depreciation for the month	30000
	Total charageable hours	9000
	Standard depreciation per charageable hour	3	=(360000/120000)
	Total Standard depreciation applied	27000
	Production volume variance	3000	Unfavorable (U)