Flexible Budget and Variances for Depreciation Clark Company’s master budget includes$360,000 for equipment depreciation. The master budget was prepared for an annual volume of120,000 chargeable hours. This volume is expected to occur uniformly throughout the year. DuringSeptember, Clark performed 9,000 chargeable hours and recorded $28,000 of depreciation.Required1. Determine the flexible-budget amount (to nearest whole dollar) for equipment depreciation inSeptember.2. Compute the spending variance for the depreciation on equipment, rounded to nearest whole dollar. Wasthe variance favorable (F) or unfavorable (U)?3. Calculate the fixed overhead production volume variance for depreciation expense in September,rounded to nearest whole dollar. Was this variance favorable (F) or unfavorable (U)? What is the interpretation of this variance?4. List possible reasons for the observed spending variance.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Flexible
$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 (to nearest whole dollar) for equipment depreciation in
September.
2. Compute the spending variance for the depreciation on equipment, rounded to nearest whole dollar. Was
the variance favorable (F) or unfavorable (U)?
3. Calculate the fixed
rounded to nearest whole dollar. Was this variance favorable (F) or unfavorable (U)? What is the interpretation of this variance?
4. List possible reasons for the observed spending variance.
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