The following standards for variable manufacturing overhead have been established for a company that makes only one product:
$\begin{array}{|l|r|}
\hline \text { Standard hours per unit of output } & 5.6 \text { hours } \
\hline \text { Standard variable overhead rate } & \$ 12.00 \text { per hour } \
\hline
\end{array}$
The following data pertain to operations for the last month:
$\begin{array}{|l|r|}
\hline \text { Actual hours } & 2,600 \text { hours } \
\hline \text { Actual total variable overhead cost } & \$ 31,330 \
\hline \text { Actual output } & 400 \text { units } \
\hline
\end{array}$
What was the variable overhead spending variance for the month?
A) $130 favourable.
B) $130 unfavourable.
C) $4,338 unfavourable.
D) $4,450 unfavourable.

Question

Quizplus · Accepted Answer

The variable overhead spending variance is calculated as the difference between the actual variable overhead cost and the standard variable overhead cost for the actual hours worked. The standard cost for the actual hours is calculated as the actual hours worked multiplied by the standard rate per hour. $$ \text{Standard cost for actual hours} = \text{Actual hours} \times \text{Standard rate per hour} = 2,600 \times \$12 = \$31,200 $$The actual variable overhead cost is given as \$31,330. $$ \text{Variable overhead spending variance} = \text{Actual cost} - \text{Standard cost for actual hours} = \$31,330 - \$31,200 = \$130 $$Since the actual cost is higher than the standard cost, the variance is unfavourable.

The Following Standards for Variable Manufacturing Overhead Have Been Established