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

Nitrol's variable overhead rate variance is calculated as Actual Hours Worked x (Actual Variable Overhead Rate - Budgeted Variable Overhead Rate). Using the given information, we get:

Actual Hours Worked: 18,000
Actual Variable Overhead: $96,000
Budgeted Hours: 20,000
Budgeted Variable Overhead Rate: $4 per hour

So, the variable overhead rate variance is:
18,000 x ($5 - $4) = $18,000

Since the actual variable overhead was $96,000, which is $18,000 greater than the budgeted amount, the variance is unfavorable. Therefore, the correct answer is C) $2,060 Unfavorable.

Nitrol Corporation Manufactures Brass Vases Using a Standard Cost System