question #5

Downward demand spiral. Gostkowski Company is about to enter the highly competitive personal electronics market with a new optical reader. In anticipation of future growth, the company has leased a large manufacturing facility and has purchased several expensive pieces of equipment. In 2013, the company's first year, Gostkowski budgets for production and sales of 24,000 units, compared with its practical capacity of 48,000. The company's cost data are as follows:

Variable manufacturing costs per unit:Direct materials$ 20Direct manufacturing labor$ 35Manufacturing overhead$9Fixed manufacturing overhead$ 576,000

a. Recompute the selling price using practical capacity as the denominator level of activity.

b. Assuming Gostkowski actually sold 20,000 units and actual fixed overhead was equal to the budgeted, compute the production-volume variance? Indicate whether over or under applied.

Please explain the production-volume variance