Figure 11-4. Kris Company calculates its predetermined rates using practical volume,which is 325,000 units.The standard cost system allows 3 direct labor hours per unit produced.Overhead is applied using direct labor hours.The total budgeted overhead is $4,260,000,of which $994,000 is fixed overhead.The actual results for the year are as follows:
Refer to Figure 11-4.Calculate the variable overhead spending variance.
A)$69,250 U
B)$69,250 F
C)$24,000 U
D)$40,000 F
E)none of these

Question

Figure 11-4. Kris Company calculates its predetermined rates using practical volume,which is 325,000 units.The standard cost system allows 3 direct labor hours per unit produced.Overhead is applied using direct labor hours.The total budgeted overhead is $4,260,000,of which $994,000 is fixed overhead.The actual results for the year are as follows:
 Refer to Figure 11-4.Calculate the variable overhead spending variance.
A)$69,250 U 
B)$69,250 F 
C)$24,000 U 
D)$40,000 F 
E)none of these

Quizplus · Accepted Answer

The formula for variable overhead spending variance is: (Actual Hours Worked x Variable Overhead Rate) - Actual Variable Overhead Cost.

First, we need to calculate the actual hours worked:
325,000 units produced x 3 direct labor hours per unit = 975,000 actual direct labor hours

Next, we need to calculate the variable overhead rate:
Total budgeted overhead - Fixed overhead = Variable overhead
$4,260,000 - $994,000 = $3,266,000
Variable overhead / Practical volume (in hours) = Variable overhead rate
$3,266,000 / (325,000 x 3) = $3.18 per direct labor hour

Finally, we can calculate the variable overhead spending variance:
(975,000 actual direct labor hours x $3.18 variable overhead rate) - Actual variable overhead cost
= ($3,102,500) - Actual variable overhead cost

From the given data, we don't have the actual variable overhead cost. Therefore, we cannot calculate the exact variance. However, we know that the total budgeted overhead is $4,260,000 and $994,000 of it is fixed. So, the amount of variable overhead is $4,260,000 - $994,000 = $3,266,000.

If the actual variable overhead cost is lower than $3,102,500, then the variance is unfavorable, indicating that the company spent less than it should have on variable overhead. Conversely, if the actual variable overhead cost is higher than $3,102,500, then the variance is favorable, indicating that the company spent more than it should have on variable overhead.

Since we cannot determine the actual variable overhead cost from the given data, we cannot determine whether the variance is favorable or unfavorable. However, we can determine that the variance amount is $69,250, which means that the company spent $69,250 more or less than expected on variable overhead, depending on the actual variable overhead cost.

Therefore, the answer is A) $69,250 U (unfavorable).