Question

Maines and Company operate a standard costing system. For this period, they incurred $45,000 in variable manufacturing overhead. They apply overhead at the rate of $2.93 per labor hour, and expect to consume 1.5 hours per unit. They made 9,000 units this period and incurred 15,100 labor hours. What is their variable overhead spending variance? Enter favorable variances as a positive number and unfavorable variances as a negative number.

Answer 1

Variable Overhead Spending Variance is the difference between the actual variable production overheads cost and what the cost should have been as per budget. Here, there is a difference in the value of actual and standard hours used it will be appropriate to calculate the Variable Overhead Spending Variance by calculating the Labour Efficiency Variance which is = Standard Rate (Standard Time for Actual output – Actual Time Worked).

In this case, the Standard variable overhead spending was for = 9000 * 1.5 hours = 13500 hours

Actual labour hours incurred = 15100

Overhead application rate = $2.93 per labor hour

Therefore, the variable overhead spending variance is:

2.93 * (13500 - 15100) = 2.93 * - 1600 = - 4688