Analysis of Fixed Overhead; Choice of Denominator The fixed overhead items of the lathe department of The Clancy Company include, for the month of January, 19_4: lop5 ITEM : ACTUAL BUDGET Supervision $ 900 $ 800 Depreciation—Plant 750 750 Depreciation—Equipment 1,750 1,750 Property taxes 350 400 Insurance—Factory 400 300 $4,150 $4,000 Expected activity for the lathe department is 1,000 standard hours per month.
Maximum capacity is 1,600 standard hours per month. Standard hours allowed for good units actually produced were 1,250.
Prepare a summary analysis of fixed-overhead variances, using expected activity as the denominator base.
Prepare a summary analysis of fixed-overhead variances, using maximum capacity as the denominator base.
Explain why the budget variances in parts 1 and 2 are identical whereas the denominator variances are different.