Cucto Company Uses Machine Hours to Allocate Its Fixed Overhead

Essay

Cucto Company uses machine hours to allocate its fixed overhead costs. Mr. Salezar, the production manager has been told that his fixed overhead variances for the past month were as follows:
Fixed overhead budget variance: $ 2,000 F
Fixed overhead volume variance: $20,000 U
The production V.P. has asked Mr. Salezar to account for his underutilization of capacity for the month. Required: Explain the meaning of the two variances and Mr. Salezar's responsibility for them.