Question

1. Variable Overhead Spending and Efficiency Variances, Columnar and Formula Approaches

   Rath Company provided the following information:

   Standard variable overhead rate (SVOR) per direct labor hour		$3.75
   Actual variable overhead costs		$222,816
   Actual direct labor hours worked (AH)		57,200
   Actual production in units		15,000
   Standard hours (SH) allowed for actual units produced		60,000

   Required:

   1. Using the columnar approach, calculate the variable overhead spending and efficiency variances. Enter amounts as positive numbers.

   (1)

   (2)

   (3)

   	Spending		Efficiency

   2. Using the formula approach, calculate the variable overhead spending variance. Enter amount as a positive number.

   favorable or unfavorable?

   $  

   3. Using the formula approach, calculate the variable overhead efficiency variance. Enter amount as a positive number.

   favorable or unfavorable?

   $  

   4. Calculate the total variable overhead variance. Enter amount as a positive number. favorable or unfavorable?

   $  

Answer 1

SR / AR = Standard rate / Actual rate
SH / AH = Standard Hours / Actual Hours
VOH = variable Overhead

1.

1. AH x AR		2. AH x SR		3. SH x SR
222816		57200*3.75 = 214500		60000*3.75 = 225000
	VOH Spending Variance (1-2)		VOH Efficiency Variance (2-3)
	8316		10500
	(U)		F
		Total variance
		2184
		(F)

2. Variable overhead spending variance = (standard rate - actual rate)*actual hours

= (3.75-222816/57200)*57200

= $8316 Unfavorable

3. Variable overhead efficiency variance = (standard hours - actual hours)*standard rate

= (60000-57200)*3.75

= $10500 Favorable

4. Total Variable overhead variance = -8316+10500 = $2184 Favorable