Question

Sanford Ltd. produces a product with the following standard cost card

Variable overhead (9 hours)

$18.91

The fixed overhead rate is based on a standard monthly volume of 15634 units.

The actual results for the month of July 20x5 are as follows:

	Direct labour (92621 hours)	$1023000
	Variable overhead	$333194
	Fixed overhead	$580000
	Units produced and sold	15383 units

What is Sanford’s variable overhead spending variance for July 20x5? Note: a negative number represents an unfavourable variance and a positive number represents a favourable variance.

Select one:

a. $-138587

b. $138587

c. $-254697

d. $0

Answer 1

Answer: Correct option a. $ -138587
Calculation of variable overhead spending variance is as follows:
Variable Overhead spending Variance = ( SVR * AH ) - ( AVR * AH )
= ( $ 2.1011111 * 92,621 ) - $ 333,194
= $ - 138,587
Thus, Variable Overhead spending Variance is $ 138,587 Unfavorable
Working note:
SVR = Standard variable overhead per unit / Standard labor hours per unit
= $ 18.91 / 9 hours
=$ 2.1011111 per hour
Note:
AH =	Actual labor hours
SH =	Standard labor hours
SVR =	Standard variable overhead rate per labor hour
AVR =	Actual variable overhead rate per labor hour