Formidable Company Collected the Following Information Using the Three Variance Method, What Is the Spending Variance

question 13

Multiple Choice

Formidable Company collected the following information: $\begin{array}{ll}\text { Standard costs per unit: }\\\text { Variable overhead } & 4 \text { machine hours } @ \$ 6 \text { per machine hour } \\\text { Fixed overhead } & 4 \text { machine hours } @ \$ 10 \text { per machine hour }\\\\\text { Actual output } & 20,000 \text { units } \\\text { Denominator (normal capacity) output } & 21,000 \text { units } \\\text { Actual machine hours } & 79,000 \text { machine hours } \\\text { Actual variable overhead cost } & \$ 540,000 \\\text { Actual fixed overhead cost } & \$ 810,000\\\end{array}$ Using the three variance method, what is the spending variance?

• A)$36,000 (F)
• B)$30,000 (U)
• C)$36,000 (U)
• D)$30,000 (F)

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Definitions:

Well-Diversified Portfolio

A portfolio spread out over many securities in such a way that the weight in any security is close to zero, resulting in negligible diversifiable risk.

Systematic Risk

The risk inherent to the entire market or market segment, which cannot be eliminated through diversification.

Unsystematic Risk

Unsystematic risk refers to the risk associated with individual investments or sectors, not affected by broader market movements.

Expected Rate of Return

The probable returns on an investment averaged over a period, accounting for the varying risks and rewards.