Millonzi Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month: What was the variable overhead rate variance for the month?
A)$4,350 favorable
B)$2,000 unfavorable
C)$2,650 favorable
D)$1,700 favorable

Question

Millonzi Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month:  What was the variable overhead rate variance for the month?
A)$4,350 favorable 
B)$2,000 unfavorable 
C)$2,650 favorable 
D)$1,700 favorable

Quizplus · Accepted Answer

The variable overhead rate variance is calculated as (Actual variable overhead rate - Standard variable overhead rate) x Actual machine-hours.

Actual variable overhead rate = Actual variable overhead / Actual machine-hours = $59,500 / 12,000 MHs = $4.96/MH 
Standard variable overhead rate = Budgeted variable overhead / Budgeted machine-hours = $60,000 / 12,500 MHs = $4.80/MH

Variable overhead rate variance = ($4.96 - $4.80) x 12,000 MHs = $1,920 favorable.

Therefore, the correct answer is C, $2,650 favorable, as this is the closest option to the calculated variance.

Millonzi Corporation Has a Standard Cost System in Which It