A manufacturing company has a standard costing system based on machine hours (MHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
$\begin{array}{|l|r|}
\hline \text { Denominator Level of Activity } & 6,100 \mathrm{MHs} \
\hline \text { Overhead Costs at the Denominator Activity Level: } & \
\hline \text { Variable Overhead Cost } & \$ 35,075 \
\hline \text { Fixed Overhead Cost } & \$ 77,775 \
\hline
\end{array}$
The following data pertain to operations for the most recent period:
$\begin{array}{|l|r|}
\hline \text { Actual Hours } & 6,300 \mathrm{MHs} \
\hline \text { Standard Hours Allowed for the Actual Output } & 5,994 \mathrm{MHs} \
\hline \text { Actual Total Variable Overhead Cost } & \$ 36,540 \
\hline \text { Actual Total Fixed Overhead Cost } & \$ 76,875 \
\hline
\end{array}$
-What was the variable overhead spending variance for the period,rounded to the nearest dollar?
A) $315 favourable.
B) $315 unfavourable.
C) $2,075 favourable.
D) $2,075 unfavourable.

Question

Quizplus · Accepted Answer

The variable overhead spending variance is calculated as the difference between the actual total variable overhead cost and the expected variable overhead cost at the actual level of activity. The expected variable overhead cost at the actual level of activity (6,300 MHs) can be calculated by first finding the variable overhead rate per machine hour (MH) at the denominator level of activity: $35,075 / 6,100 MHs = $5.75 per MH. Then, multiply this rate by the actual hours worked: 6,300 MHs * $5.75 = $36,225. The actual total variable overhead cost was $36,540, so the variance is $36,540 - $36,225 = $315 unfavourable.

A Manufacturing Company Has a Standard Costing System Based on Machine