Question

1. Lee Company's standards for the most recent period are given below. Fixed and variable manufacturing overhead costs are applied to products on the basis of machine hours. The denominator volume of machine hours is 9,000.

   	Standard Quantity or Hours per unit	Standard Price or Rate per unit	Standard Cost per unit
   Direct Materials	3 feet	$6 per foot	$18
   Direct Labor	1.5 direct labor hours	$10 per direct labor hour	$15
   Variable Overhead	2 machine hours	$12 per machine hour	$24
   Fixed Overhead	2 machine hours	$15 per machine hour	$30

   Actual costs for the most recent period, during which 5,000 units of output were actually produced and used 9,600 machine hours, are given below:

   Direct Materials	The firm purchased 16,000 feet at $6.30 per foot, but only used 14,500 feet in production.
   Direct Labor	The firm used 7,150 direct labor hours and paid $11 per direct labor hour.
   Variable Overhead	Actual variable overhead costs were $122,880.
   Fixed Overhead	Actual fixed overhead costs were $142,000.

   What was the company’s variable overhead rate variance?

   	A.	$7,680 unfavorable
   	B.	$2,880 favorable
   	C.	$2,880 unfavorable
   	D.	$7,680 favorable

2.

1. Lee Company's standards for the most recent period are given below. Fixed and variable manufacturing overhead costs are applied to products on the basis of machine hours. The denominator volume of machine hours is 9,000.

   	Standard Quantity or Hours per unit	Standard Price or Rate per unit	Standard Cost per unit
   Direct Materials	3 feet	$6 per foot	$18
   Direct Labor	1.5 direct labor hours	$10 per direct labor hour	$15
   Variable Overhead	2 machine hours	$12 per machine hour	$24
   Fixed Overhead	2 machine hours	$15 per machine hour	$30

   Actual costs for the most recent period, during which 5,000 units of output were actually produced and used 9,600 machine hours, are given below:

   Direct Materials	The firm purchased 16,000 feet at $6.30 per foot, but only used 14,500 feet in production.
   Direct Labor	The firm used 7,150 direct labor hours and paid $11 per direct labor hour.
   Variable Overhead	Actual variable overhead costs were $122,880.
   Fixed Overhead	Actual fixed overhead costs were $142,000.

   What was the company’s fixed overhead volume variance?

   	A.	$9,000 favorable
   	B.	$9,000 unfavorable
   	C.	$15,000 favorable
   	D.	$15,000 unfavorable

Answer 1

1	A. $7,680 unfavorable
	Variable overhead rate variance =	(Actual variable overhead rate - standard variable overhead rate) x Actual hours worked
		($122,880 - $12 x 9,600)
		$7,680	unfavorable
2	D. $15,000 unfavorable
	Fixed overhead volume variance	$15,000	unfavorable
	(Absorbed Fixed overheads - Budgeted Fixed overheads)
	(5,000 x $30 - 4,500 x $30)