Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the following total budgeted costs at a denominator activity level of 20,000 machine-hours: During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following actual total overhead costs were incurred: At standard, each unit of finished product requires 1.4 hours of machine time. The variable overhead rate variance for maintenance cost for June was:
A)$1,020 F
B)$1,020 U
C)$3,230 F
D)$3,230 U

Question

Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the following total budgeted costs at a denominator activity level of 20,000 machine-hours:  During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following actual total overhead costs were incurred:  At standard, each unit of finished product requires 1.4 hours of machine time. The variable overhead rate variance for maintenance cost for June was:
A)$1,020 F 
B)$1,020 U 
C)$3,230 F 
D)$3,230 U

Quizplus · Accepted Answer

To calculate the variable overhead rate variance for maintenance cost, we need to use the following formula:
Variable overhead rate variance = (Actual variable overhead rate - Budgeted variable overhead rate) x Actual hours worked

First, let's calculate the budgeted variable overhead rate per machine hour:
Budgeted variable overhead rate = Budgeted variable overhead costs / Denominator machine hours
Budgeted variable overhead rate = $69,200 / 20,000 machine-hours
Budgeted variable overhead rate = $3.46 per machine-hour

Next, let's calculate the actual variable overhead rate per machine hour:
Actual variable overhead rate = Actual variable overhead costs / Actual hours worked
Actual variable overhead rate = $72,080 / 17,000 machine-hours
Actual variable overhead rate = $4.25 per machine-hour

Now we can calculate the variable overhead rate variance for maintenance cost:
Variable overhead rate variance = ($4.25 - $3.46) x 17,000 machine-hours
Variable overhead rate variance = $7920

Since the actual variable overhead rate is higher than the budgeted variable overhead rate, the variance is unfavorable (U) for the company. Therefore, the correct answer is B) $1,020 U.

Pohl Corporation Uses a Standard Cost System in Which Manufacturing