The Phelps Company applies overhead costs to products on the basis of standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March: The budgeted direct labor-hours is used as the denominator activity for the month.
-The variable overhead rate variance for March is:
A)$7,000 unfavorable
B)$9,000 unfavorable
C)$13,000 unfavorable
D)$11,000 unfavorable

Question

The Phelps Company applies overhead costs to products on the basis of standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March:  The budgeted direct labor-hours is used as the denominator activity for the month.
-The variable overhead rate variance for March is:
A)$7,000 unfavorable 
B)$9,000 unfavorable 
C)$13,000 unfavorable 
D)$11,000 unfavorable

Quizplus · Accepted Answer

Variable component of the predetermined overhead rate = Estimated total variable manufacturing overhead F1F1F1S1F1F1F10 Estimated total amount of the allocation base
= $80,000 F1F1F1S1F1F1F10 (20,000 units F1F1F1S1F1F1F10 5 hours per unit)= $0.80 per hour
Variable overhead rate variance = (AH F1F1F1S1F1F1F10 AR)- (AH F1F1F1S1F1F1F10 SR)
= $91,000 - (105,000 hours F1F1F1S1F1F1F10 $0.80 per hour)
= $91,000 - $84,000 = $7,000 U

The Phelps Company Applies Overhead Costs to Products on the Basis