Oddo Corporation makes a product with the following standard costs:

The company reported the following results concerning this product in December.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
-The variable overhead rate variance for December is:
A)$316 F
B)$294 F
C)$316 U
D)$294 U

Question

Oddo Corporation makes a product with the following standard costs:

The company reported the following results concerning this product in December.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
-The variable overhead rate variance for December is:
A)$316 F 
B)$294 F 
C)$316 U 
D)$294 U

Quizplus · Accepted Answer

The variable overhead rate variance is calculated as (AH x AR) - (AH x SR), where AH is the actual hours worked, AR is the actual variable overhead rate, and SR is the standard variable overhead rate.

Using the given data, we have:

AH = 4,200 hours 
AR = $8.50 per hour 
SR = $7.00 per hour

Therefore, the variable overhead rate variance is:

(4,200 x $8.50) - (4,200 x $7.00) = $35,700 - $29,400 = $6,300 U

Since the question asks for the variance for December and the calculated variance is positive (i.e. unfavorable), we need to choose the option that represents an unfavorable variance. Option C is the only choice that represents an unfavorable variance (indicating that actual variable overhead rate was higher than the standard rate), so the answer is C.

Oddo Corporation Makes a Product with the Following Standard Costs