Question
Smith Equity Company offers financial services to its clients. Recently, Smith has experienced rapid growth and has increased both its client base and the variety
Smith Equity Company offers financial services to its clients. Recently, Smith has experienced rapid growth and has increased both its client base and the variety of services it offers. The company is becoming concerned about its rising costs, however, particularly related to technology overhead.
The technology budget for Smith and its actual results for the first quarter of 2020 are given below:
Budgets | ||||
---|---|---|---|---|
CPU units per client interaction | 0.4 | |||
Fixed overhead costs |
| |||
Variable overhead rate | $2.50 per CPU unit | |||
Client interations | 20,000 |
Actual | |
Client interactions | 21,000 |
---|---|
Fixed overhead costs | 63,840 |
Variable overhead costs | 19,550 |
CPU units used | 8,500 |
1. | Calculate the variable overhead spending and efficiency variances, and indicate whether each is favorable (F) or unfavorable (U). |
2. | Calculate the fixed overhead spending and production-volume variances, and indicate whether each is favorable (F) or unfavorable (U). |
3. | Comment on Smith Equity's overhead variances. In your view, is the firm right to be worried about its control over technology spending? |
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