Question

Company uses standard costing. Overhead is applied to products on the basis of standard direct labor hours for

actual production. Data for company follows:

Standard direct labor hours allowed for actual output	110,000
Actual direct labor hours	115,000
Direct labor hours budgeted in the master budget	120,000
Budgeted total variable overhead cost	$360,000
Actual variable overhead cost	328,000

1.Calculate the variable overhead spending variance and whether it is favorable or unfavorable.

2.Calculate the variable overhead efficiency variance and whether it is favorable or unfavorable.

3.Calculate the total variable overhead variance and whether it is favorable or unfavorable.

Answer 1

• Requirement 1

Variable Overhead Spending Variance
(	Standard Cost = (110000 hours x (360000/120000)]	-	Actual Cost	)
(	$           330,000.00	-	$          328,000.00	)
	2000
	Variance		$              2,000.00			Favourable-F

• Requirement 2

Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate = [360000/120000 hrs]
(	110000	-	115000	)	x	$                           3.00
	-15000
	Variance		$            15,000.00			Unfavourable-U

• Requirement 3

Total Variable Overhead variance = Budgeted Variable cost – Actual Overhead cost

= 360000 – 328000

= $ 32,000 Favourable