The Ferris Company applies manufacturing overhead costs to products on the basis of direct labour hours. The standard cost card shows that 3 direct labour hours are required per unit of product. For August, the company budgeted to work 90,000 direct labour hours and to incur the following total manufacturing overhead costs:
$\begin{array}{l|r|}
\hline \text { Total Variable Overhead Costs } & \$ 99,000 \
\hline \text { Total Fixed Overhead Costs } & \$ 118,000 \
\hline
\end{array}$
During August, the company completed 28,000 units of product, worked 86,000 direct labour hours, and incurred the following total manufacturing overhead costs:
$\begin{array}{|l|r|}
\hline \text { Total Variable Overhead Costs } & \$ 98,900 \
\hline \text { Total Fixed Overhead Costs } & \$ 115,300 \
\hline
\end{array}$
The denominator activity used for the predetermined overhead rate was 90,000 direct labour hours.
-For August,what was the variable overhead spending variance?
A) $4,300 favourable.
B) $4,300 unfavourable.
C) $6,500 favourable.
D) $6,500 unfavourable.

Question

Quizplus · Accepted Answer

The variable overhead spending variance is calculated as the difference between the actual variable overhead costs incurred and the budgeted (or standard) variable overhead costs for the actual level of activity. The budgeted variable overhead rate per direct labour hour is $\$99,000 / 90,000 hours = \$1.10$ per hour. For 86,000 actual direct labour hours, the budgeted (or standard) variable overhead costs would be $86,000 hours \times \$1.10 = \$94,600$. The actual variable overhead costs were \$98,900. Therefore, the variable overhead spending variance is $\$98,900 - \$94,600 = \$4,300$ unfavourable, because the actual costs were higher than the budgeted costs for the actual level of activity.

The Ferris Company Applies Manufacturing Overhead Costs to Products on the Basis