Question

The following data pertains to the month of October for ElmCo. when production was budgeted to be 5,000 units of P90. P90 has standard costs per unit of: 3 lbs. of Direct Materials at a cost of $7.00 per lb.; 0.20 hours of Direct Labor at $18.00 per hour; and Variable Overhead assigned on the basis of 0.05 machine hours at a rate of $50 per machine hour. In October the production of P90 totaled 4,600 units, using 324 machine hours costing a total of $17,066. Determine the variable overhead spending variance. (Negative numbers indicate a favorable variance.)

Answer 1

Ans.	Variable overhead spending variance = Actual variable overhead cost - (Standard hours * Standard rate)
		$17,066 - (230 * $50)
		$17,066 - $11,500
		$5,566	Unfavorable
	*If the standard cost, rate and hours are higher than the actual it means the variance is favorable.
	*If the standard cost, rate and hours are lower than the actual it means the variance is unfavorable.
	*Standard hours = Actual output * standard hours per unit of output
		4,600 units * 0.05 machine hours per unit
		230 machine hours