Harrison Company Uses Machine Hours to Allocate Its Fixed Overhead

question 83

Essay

Harrison Company uses machine hours to allocate its fixed overhead costs.Mr.Alvarez,the production manager has been told that his fixed overhead variances for the past month were as follows:
Fixed overhead budget variance: $2,000 F
Fixed overhead volume variance: $20,000 U
The production V.P.has asked Mr.Alvarez to account for his underutilization of capacity for the month.Required:
Explain the meaning of the two variances and Mr.Alvarez's responsibility for them.

---

Definitions:

Horizontal Analysis

Financial analysis that compares an item in a current statement with the same item in prior statements in terms of the amount and percentage of change.

Base Year

A specific year chosen as a point of comparison for financial or economic data over time.

Current Position Analysis

The evaluation of a company’s ability to pay its current liabilities.

Short-Term Creditors

Entities or individuals who have provided financial credit to a company with the expectation of being repaid within a short period, usually within a year.