Question

Microsoft Inc. has large overheads in their headquarters at Seattle. Microsoft applies overhead based on direct labor hours. The variable overhead standard is 8 hours at $3.70 per hour. During October, Microsoft Company spent $158,700 for variable overhead. 46,440 labor hours were used to produce 6,300 units. What is the variable overhead rate variance for Microsoft?

Answer 1

Actual Rate = Actual Variable Overhead Cost / Actual Hours Used
                   = $158,700 / 46,440

Variable Overhead rate variance
            = (Standard Rate - Actual Rate) x Actual Hours
           = ($3.70 - 158700 / 46440) x 46,440
           = $13,128 Favorable