Megan,Inc.uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ $5/hr)= $10;overhead (2 hrs @ $2.50/hr)= $5.The flexible budget for overhead is $120,000 plus $1 per direct labor hour (DLH).Actual data for the month show total overhead costs of $225,000,total fixed overhead of $123,000,85,000 hours worked,and 40,000 units produced.The variable overhead spending variance is:
A)$0.
B)$3,000 unfavorable.
C)$5,000 unfavorable.
D)$17,000 unfavorable.
E)$25,000 unfavorable.

Question

Quizplus · Accepted Answer

Step 1: Calculate the standard cost per unit for overhead: 
Standard overhead cost per unit = 2 hrs x $2.50/hr = $5

Step 2: Calculate the flexible budget for overhead: 
Flexible budget for overhead = $120,000 + ($1 x 85,000) = $205,000

Step 3: Calculate the variable overhead spending variance: 
Actual variable overhead costs - Flexible budget for overhead 
= $225,000 - $205,000 
= $20,000 unfavorable

Step 4: Calculate the variable overhead efficiency variance: 
Standard overhead cost per unit x (Actual DLH - Standard DLH) 
= $5 x (85,000 - (2 x 40,000)) 
= $5 x 5,000 
= $25,000 unfavorable

Step 5: Calculate the total variable overhead variance: 
Total variable overhead variance = Variable overhead spending variance + Variable overhead efficiency variance 
= $20,000 unfavorable + $25,000 unfavorable 
= $45,000 unfavorable

Therefore, the variable overhead spending variance is $20,000 unfavorable (option D).

Megan,Incuses the Following Standard Costs Per Unit for One of Its