Question

The following information for the past year is available from Thinnews Co., a company that uses machine hours to apply standard factory overhead cost to outputs:

Actual total factory overhead cost incurred	$	30,000
Actual fixed overhead cost incurred	$	7,000
Budgeted fixed overhead cost	$	12,000
Actual machine hours		8,000
Standard machine hours allowed for the units manufactured		4,600
Denominator volume—machine hours		7,500
Standard variable overhead rate per machine hour	$	3

The variable overhead spending variance, to the nearest whole dollar, is:

multiple choice

• $600 unfavorable.

• $1,000 favorable.

• $1,400 unfavorable.

• $1,500 favorable.

• $2,100 favorable

Answer 1

Answer: The correct answer is $1,000 Favorable

Actual Variable Overhead Cost = Actual Factory Overhead – Actual Fixed Overhead Expenses
Actual Variable Overhead Cost = $30,000 - $7,000
Actual Variable Overhead Cost = $23,000

Flexible Budget for Variable Overhead = Actual Machine Hour * Standard Variable Overhead rate per machine hour
Flexible Budget for Variable Overhead = 8,000 * $3
Flexible Budget for Variable Overhead = $24,000

Variable Overhead Spending Variance = Actual Variable Overhead Cost – Flexible Budget for Variable Overhead
Variable Overhead Spending Variance = $23,000 - $24,000
Variable Overhead Spending Variance = $1,000 Favorable