Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to production on the basis of standard direct labor-hours (DLHs). The above standards were based on an expected annual volume of 60,000 ties. The actual results for last year were as follows: What was Vette's variable overhead rate variance?
A)$2,800 Unfavorable
B)$13,200 Favorable
C)$16,000 Favorable
D)$68,000 Unfavorable

Question

Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to production on the basis of standard direct labor-hours (DLHs).  The above standards were based on an expected annual volume of 60,000 ties. The actual results for last year were as follows:  What was Vette's variable overhead rate variance?
A)$2,800 Unfavorable 
B)$13,200 Favorable 
C)$16,000 Favorable 
D)$68,000 Unfavorable

Quizplus · Accepted Answer

The variable overhead rate variance is calculated as follows:

Actual hours x (actual rate - standard rate)

Using the actual results given:

68,000 DLHs x ($0.70 - $0.80) = $16,000 favorable variance

Therefore, the correct answer is C, $16,000 favorable.

Vette Tie Corporation Has Developed the Following Manufacturing Overhead Standards