Abbott has a standard variable overhead rate of $4.50 per machine hour, and each unit produced has a standard time allowed of three hours. The company's static budget was based on 46,000 units. Actual results for the year follow.
Actual units produced: 42,000
Actual machine hours worked: 120,000
Actual variable overhead incurred: $520,000
Abbott's variable-overhead spending variance is:
A) $20,000 favorable.
B) $20,000 unfavorable.
C) $27,000 favorable.
D) $27,000 unfavorable.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

The variable-overhead spending variance is calculated as follows:Variable-overhead spending variance = Actual variable overhead incurred - (Standard variable overhead rate x Actual machine hours worked)= $520,000 - ($4.50 x 120,000)= $520,000 - $540,000= $20,000 unfavorable

Abbott Has a Standard Variable Overhead Rate of $4