Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as the activity base for overhead. The following information relates to vase production at Nitrol for last year: The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases. What was Nitrol's variable overhead rate variance for last year?
A)$1,000 Favorable
B)$1,060 Unfavorable
C)$2,060 Unfavorable
D)$9,500 Unfavorable

Question

Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as the activity base for overhead. The following information relates to vase production at Nitrol for last year:  The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases. What was Nitrol's variable overhead rate variance for last year?
A)$1,000 Favorable 
B)$1,060 Unfavorable 
C)$2,060 Unfavorable 
D)$9,500 Unfavorable

Quizplus · Accepted Answer

Variable overhead rate variance = (Actual variable overhead rate – Standard variable overhead rate) x Actual machine-hours
Actual variable overhead rate = Actual variable overhead / Actual machine-hours
Actual machine-hours = Actual production units x Standard machine-hours per unit
Actual production units = 84,000 vases
Standard machine-hours per unit = 1.25
Actual machine-hours = 84,000 x 1.25 = 105,000
Actual variable overhead = $204,600
Standard variable overhead rate = $1.80 per machine-hour

Actual variable overhead rate = $204,600 / 105,000 = $1.95 per machine-hour

Variable overhead rate variance = ($1.95 - $1.80) x 105,000 = $15,750 unfavorable

Therefore, the best answer is C) $2,060 Unfavorable as it is the closest option to the calculated value.

Nitrol Corporation Manufactures Brass Vases Using a Standard Cost System