Question

The following information for the past year is available from Thinnews Co., a company that uses machine hours to apply standard factory overhead cost to outputs:

Actual total factory overhead cost incurred	$	24,000
Actual fixed overhead cost incurred	$	10,000
Budgeted fixed overhead cost	$	11,000
Actual machine hours		5,000
Standard machine hours allowed for the units manufactured		4,800
Denominator volume—machine hours		5,500
Standard variable overhead rate per machine hour	$	3.00

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the total factory overhead spending variance, to the nearest whole dollar, is:

Multiple Choice

$1,400 favorable.

$1,400 unfavorable.

$2,000 favorable.

$600 unfavorable.

$0.

Answer 1

1.Total overhead spending variance = Total actual overhead cost incurred - FB for overhead based on inputs
(i.e., actual machine hoursworked).

2. Total actual overhead cost incurred this period = $24,000 (given).
3. Flexible budget for variable overhead, based on inputs = $3.00/machine hour x 5,000 machine hours worked = $15,000.

4. Flexible budget for fixed overhead = $11,000 lump-sum amount.

5. Total overhead spending variance = $24,000 - ($15,000 + $11,000) = $24,000 - $26,000 = $2,000 favorable