At the end of 2020, the S. T. Shire Company anticipated that sales would rise 20 percent the next year, 2021.

Therefore, production was increased from 20,000 units to 24,000 units to meet this expected demand. At Standard: Each unit takes 0.10 hours (or make 10 per hour).

However, the economic conditions kept the sales level at 20,000 units for both years.

Denominator Activity Level:

Read carefully!

The fixed overhead rate under absorption costing was again based upon practical plant capacity of 30,000 units per year, even though production was much less two years in a row.

Standard Variable Manufacturing Costs Per Unit for 2020 and 2021

Direct Labour $ 7.50

Materials 4.50

Variable Overhead 3.00

$15.00

The following ACTUAL Data Pertain to 2020, 2021	2020	2021
Selling price per unit	$30	$30
* Unfavourable variable OH variances (spending and efficiency combined)	($5,000)	($4,000)
UNITS:
Sales (units)	20,000	20,000
Beginning inventory (units)	2,000	2,000
Production (units)	20,000	24,000
Ending inventory	2,000	6,000

Annual Fixed Costs for 2020 and 2021	Budgeted	Budgeted	ACTUAL
	2020	2021	2021
Fixed Manufacturing Overhead	$ 90,000	$ 90,000	$ 94,000
Fixed Selling & Administration	100,000	100,000	$105,000
	$ 190,000	$ 190,000	$199,000

All variances are closed to the cost of goods sold account.

* Variable selling costs are $2.00 per unit sold.

* Note: Fixed overhead variances must be calculated.