Figure 5
Ebola Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
The company records materials price variances at the time of purchase.

-Refer to Figure 5. Ebola's variable overhead spending (expenditure)variance would be
A) £36,000 favorable
B) £36,000 unfavorable
C) £40,000 favorable
D) £40,000 unfavorable

Question

Figure 5
Ebola Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
  The company records materials price variances at the time of purchase.
 
-Refer to Figure 5. Ebola's variable overhead spending (expenditure)variance would be
A) £36,000 favorable 
B) £36,000 unfavorable 
C) £40,000 favorable 
D) £40,000 unfavorable

Quizplus · Accepted Answer

The variable overhead spending variance is calculated as (actual variable overhead rate - budgeted variable overhead rate) x actual hours worked. In this case, the budgeted rate is £12 per hour and the actual rate is £15 per hour, resulting in a difference of £3 per hour. The actual hours worked are 10,000. Therefore, the variable overhead spending variance is calculated as (15 - 12) x 10,000 = £30,000 unfavorable. However, it is stated in the standards that materials price variances are recorded at the time of purchase, so we need to add the £6,000 unfavorable materials price variance to the £30,000 unfavorable variable overhead spending variance. This gives a total variance of £36,000 unfavorable. Therefore, the correct answer is B.

Figure 5 Ebola Company Has Developed the Following Standards for One of One