Bushnell, Inc. has a standard variable overhead rate of $4 per machine hour, with each completed unit expected to take three machine hours to produce. A review of the company's accounting records found the following:
Actual variable overhead: $210,000
Variable-overhead efficiency variance: $18,000U
Variable-overhead spending variance: $30,000F
How many units did Bushnell actually produce during the period?
A) 13,500.
B) 16,500.
C) 18,500.
D) 21,500.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

Variable-overhead efficiency variance = Actual machine hours - Standard machine hours allowed x Standard variable-overhead rate

$18,000 U = Actual machine hours - (number of units x 3) x $4
$18,000 U = AMH - 3U x $4
$18,000 U = AMH - $12U
$12U = AMH + $18,000 U
$12U = $192,000
U = 16,000

Actual variable overhead = Actual machine hours x Standard variable-overhead rate
$210,000 = AMH x $4
AMH = 52,500

Number of units produced = Actual machine hours / (Number of machine hours per unit)
Number of units produced = 52,500 / 3
Number of units produced = 17,500

However, this answer does not take into account the variable-overhead spending variance. To calculate the actual number of units produced:

Variable-overhead spending variance = Actual variable overhead - (Actual machine hours x Standard variable-overhead rate)

$30,000 F = $210,000 - (AMH x $4)
$30,000 F = $210,000 - ($52,500 x $4)
$30,000 F = $210,000 - $210,000
$30,000 F = $0

Since the variable-overhead spending variance is zero, the actual variable overhead equals the expected variable overhead, and the actual number of units produced is the same as calculated above:

Number of units produced = 17,500

Therefore, the best choice is C: 18,500.