Concept explainers
After some study, Carlyle determines that its variable and fixed technology overhead costs are both driven by the processing time involved in meeting client requests. This is typically measured in CPU units of their computer usage. Carlyle’s measure of output is the number of client interactions in a given period. The technology budget for Carlyle for the first quarter of 2017 was as follows:
Client interactions | 12,000 |
Fixed Overhead | $14,400 |
Variable Overhead | 4,800 CPU units @ $2 per CPU unit |
The actual results for the first quarter of 2017 are given below:
Client interactions | 13,600 |
Fixed Overhead | $14,100 |
Variable Overhead | $11,200 |
CPU Units used | 5,500 |
- A. Calculate the variable overhead spending and efficiency variances, and indicate whether each is favorable (F) or unfavorable (U).
Required
- B. Calculate the fixed overhead spending and production-volume variances, and indicate whether each is favorable (F) or unfavorable (U).
- C. Comment on Carlyle Capital’s overhead variances. In your view, is the firm right to be worried about its control over technology spending?
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