Clark Company’s master budget includes $348,000 for equipment depreciation. The
ID: 2341360 • Letter: C
Question
Clark Company’s master budget includes $348,000 for equipment depreciation. The master budget was prepared for an annual volume of 116,000 chargeable hours. This volume is expected to occur uniformly throughout the year. During September, Clark performed 8,500 chargeable hours and recorded $25,500 of depreciation.
Required:
1. Determine the flexible-budget amount for equipment depreciation in September.
2. Compute the spending variance for the depreciation on equipment. Was the variance favorable (F) or unfavorable (U)? (Leave no cell blank; if there is no effect enter "0" and select "None" from dropdown.)
3. Calculate the fixed overhead production volume variance for depreciation expense in September. Was this variance favorable (F) or unfavorable (U)? (Leave no cell blank; if there is no effect enter "0" and select "None" from dropdown.)
Explanation / Answer
1) flexible budget depreciation exp for the month of September
8500hours*3$=25,500$
Budgeted rate of depreciation per hour=3$
3,48,000/1,16,000 i.e budget Expense/budgeted hours
2) spending veriance
Flexible budget expenditure - Actual expenditure
25,500 - 22,500=3,000$ favourable
3) fixed overhead production Volume veriance
(Standered hours - budgeted hours)*Budgeted rate per hour
(9,667-8,500)*3=3501$ favourable