Use this information to answer the questions that follow.

The standard costs and actual costs for factory overhead for the manufacture of 2,500 units of actual production are as follows:

-The variable factory overhead controllable variance is
A) $2,000 unfavorable
B) $3,000 favorable
C) $0
D) $3,000 unfavorable

Question

Use this information to answer the questions that follow.
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The standard costs and actual costs for factory overhead for the manufacture of 2,500 units of actual production are as follows:
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-The variable factory overhead controllable variance is
A) $2,000 unfavorable 
B) $3,000 favorable 
C) $0 
D) $3,000 unfavorable

Quizplus · Accepted Answer

To calculate the variable factory overhead controllable variance, we need to compare the actual variable overhead costs with the budgeted variable overhead costs (based on standard rates and actual units produced).

Actual variable overhead = $25,650
Budgeted variable overhead = ($5.50 per DLH × 5,000 DLHs) = $27,500

Variable factory overhead controllable variance = Budgeted variable overhead - Actual variable overhead
= $27,500 - $25,650
= $1,850 favorable

Since the actual variable overhead costs are less than the budgeted variable overhead costs, the variance is favorable. Therefore, choices A, B, and C are incorrect.

However, the question asks for the controllable variance, which means we need to analyze the portion of the variance that is controllable by the organization's management (as opposed to uncontrollable factors like inflation or changes in market conditions).

Looking at the breakdown of the variable overhead costs, we can see that the $1,850 favorable variance is due entirely to efficiency improvements (using fewer direct labor hours than expected). Since this is not a cost that management can control (it depends on the skills and productivity of the workers), we need to adjust the variance calculation to eliminate this factor.

Variable factory overhead controllable variance = (actual variable overhead rate - budgeted variable overhead rate) × actual hours

Actual variable overhead rate = actual variable overhead ÷ actual hours = $25,650 ÷ 4,900 DLHs = $5.25 per DLH

Budgeted variable overhead rate = budgeted variable overhead ÷ standard hours = $27,500 ÷ 5,000 DLHs = $5.50 per DLH

Variable factory overhead controllable variance = ($5.50 per DLH - $5.25 per DLH) × 4,900 DLHs 
= $1,225 unfavorable

Therefore, the answer is D, $3,000 unfavorable, since the variance due to uncontrollable factors (i.e. favorable efficiency) is subtracted from the total favorable variance.

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