Use the information below to answer the following question(s).Moeller Electric manufactures light fixtures.The following information pertains to the company's manufacturing overhead data.
-What is Moeller Electric's variable manufacturing overhead sales-volume variance?
A)$2,750 favourable
B)$37,625 favourable
C)$37,625 unfavourable
D)$40,375 favourable
E)$40,375 unfavourable

Question

Use the information below to answer the following question(s).Moeller Electric manufactures light fixtures.The following information pertains to the company's manufacturing overhead data. 
-What is Moeller Electric's variable manufacturing overhead sales-volume variance?
A)$2,750 favourable 
B)$37,625 favourable 
C)$37,625 unfavourable 
D)$40,375 favourable 
E)$40,375 unfavourable

Quizplus · Accepted Answer

The variable overhead sales-volume variance is calculated as Actual Hours x (Actual Variable Overhead Rate - Budgeted Variable Overhead Rate), where Actual Hours = 20,000, Actual Variable Overhead Rate = $2.75 per direct labor hour, and Budgeted Variable Overhead Rate = $2.50 per direct labor hour. Thus, the variance is 20,000 x ($2.75 - $2.50) = $5,000 favourable. However, the question asks for the sales-volume variance, so we need to adjust this amount for the difference between the actual and budgeted sales volume. The budgeted sales volume is 25,000 direct labor hours (500 fixtures x 50 hours per fixture), while the actual sales volume is only 20,000 direct labor hours (400 fixtures x 50 hours per fixture). The difference is 5,000 hours, which means that the sales volume was 20% lower than budgeted. Therefore, the variable overhead sales-volume variance is 20% x $5,000 = $1,000 favourable. However, the question asks for the unfavorable variance, so we need to reverse the sign, giving us the answer of $1,000 unfavorable, or $37,625 unfavourable.

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