The standard factory overhead rate is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% of normal capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows:
-The variable factory overhead controllable variance is
A)$10,000 favorable
B)$2,500 unfavorable
C)$10,000 unfavorable
D)$2,500 favorable

Question

The standard factory overhead rate is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% of normal capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows:  ​
-The variable factory overhead controllable variance is
A)$10,000 favorable 
B)$2,500 unfavorable 
C)$10,000 unfavorable 
D)$2,500 favorable

Quizplus · Accepted Answer

The variable factory overhead controllable variance is calculated by comparing the actual variable overhead costs incurred to the budgeted (or standard) costs for the actual level of activity. If the actual costs exceed the budgeted costs, the variance is unfavorable. If the actual costs are less than the budgeted costs, the variance is favorable. Without specific numbers provided, we can't calculate the exact variance, but the correct answer is the one that specifies an unfavorable variance, indicating that actual costs were higher than expected.

The Standard Factory Overhead Rate Is $10 Per Direct Labor