Top Eagle Company makes customized golf shirts for sale to golf courses. Each shirt requires 1.5 hours to produce because of the customized logo for each golf course. Top Eagle uses direct labor-hours to allocate the overhead cost to production. Fixed overhead costs, including rent, depreciation, supervisory salaries, and other production expenses, are budgeted at $15,300 per month. The facility currently used is large enough to produce 1,700 shirts per month. During March, Top Eagle produced 610 shirts and actual fixed costs were $11,600. Read the requirements. Requirements 1 & 2. Calculate the fixed overhead spending variance and indicate whether it is favorable (F) or unfavorable (U). If Top Eagle uses direct labor-hours available at capacity to calculate the budgeted fixed overhead rate, what is the production-volume variance? Indicate whether it is favorable (F) or unfavorable (U). Begin by determining the formula then computing the fixed overhead rate per direct labor hour. (Round the fixed overhead rate to the nearest cent.) Fixed overhead rate = Next, complete the following table. Actual Costs Static Allocated Incurred Budget Overhead Calculate the fixed overhead spending variance and indicate whether it is favorable (F) or unfavorable (U). Spending variance Calculate the fixed overhead production-volume variance and indicate whether it is favorable (F) or unfavorable (U). Production-volume variance Requirement 3. An unfavorable production-volume variance could be interpreted as the economic cost of unused capacity. Why would Top Eagle be willing to incur this cost? Select all that apply. A. Basic economics provides a demand curve that shows a tradeoff between price charged and quantity demanded. Potentially, Top Eagle could have lower net revenue if it produces at capacity and sells at a lower price than if it sells at a higher price at some level below capacity. B. For most products, demand does not vary from month to month. Top Eagle may be willing to incur the cost of unused capacity because it is easy to track and makes budgeting more convenient. C. Basic economics provides a demand curve that shows a tradeoff between capacity and actual fixed overhead expenses. This creates an inherent cost of unused capacity over which Top Eagle has no control. D. For most products, demand varies from month to month. If Top Eagle wants to meet demand in high demand months, the company will have excess capacity in low demand months. Having some access capacity would allow Top Eagle to produce enough to cover peak demand as well as slack to deal with unexpected demand surges in non-peak months. Requirement 4. Waggle's budgeted variable cost per unit is $21, and it expects to sell its shirts for $59 apiece. Compute the sales-volume variance and reconcile it with the production-volume variance calculated in requirement 2. What does each concept measure? Begin by calculating the static-budget operating income for March. Revenues Variable costs Fixed overhead costs Static-budget operating income Next, calculate the flexible-budget operating income for March. Revenues Variable costs Fixed overhead costs Flexible-budget operating income Compute the sales-volume variance and indicate whether it is favorable (F) or unfavorable (U). Sales-volume variance Now, select the formula and enter the amounts to calculate the operating-income volume variance. Operating-income volume variance = = Reconcile the sales-volume variance with the production-volume variance calculated in requirement 2. Sales-volume variance What does each concept measure? The operating-income volume variance assumes that in fixed costs would be saved if production and sales volume decreased by units