Formidable Company collected the following information: Standard costs per unit:
Variable overhead 4 machine hours @ $6 per machine hour
Fixed overhead 4 machine hours @ $10 per machine hour
Actual output 20,000 units
Denominator (normal capacity) output 21,000 units
Actual machine hours 79,000 machine hours
Actual variable overhead cost $540,000
Actual fixed overhead cost $810,000
Using the two variance method, what is the total variance?
A) $30,000 (U)
B) $70,000 (U)
C) $70,000 (F)
D) $30,000 (F)

Question

Quizplus · Accepted Answer

Using the two variance method, the total variance can be calculated as follows:
Total Variance = Variable Overhead Efficiency Variance + Fixed Overhead Budget Variance
Variable Overhead Efficiency Variance = (Actual Hours - Standard Hours) x Standard Rate
= (79,000 - (20,000 x 4)) x $6
= $234,000 (U)
Fixed Overhead Budget Variance = Actual Fixed Overhead Cost - (Denominator Hours x Standard Fixed Overhead Rate)
= $810,000 - (21,000 x 4 x $10)
= $540,000 (U) 
Total Variance = $234,000 (U) + $540,000 (U) = $774,000 (U)
Thus, the total variance is $770,000 (U). Therefore, the best choice is B.

Formidable Company Collected the Following Information: Standard Costs Per Unit