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$35,000 Actual fixed overhead cost incurred$12,000 Budgeted fixed overhead cost$10,000 Actual machine hours 9,000 Standard machine hours allowed for the units manufactured 5,400 Denominator volume—machine hours 6,100 Standard variable overhead rate per machine hour$3 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.$600 unfavorable.$0.$2,000 favorable.$1,400 unfavorable.

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 = $35,000 (given).
3. Flexible budget for variable overhead, based on inputs = $3.00/machine hour x 9000 machine hours worked = $27,000.

4. Flexible budget for fixed overhead = $10,000 lump-sum amount.

5. Total overhead spending variance = $35,000 - ($27,000 + $10,000) = $35,000 - $37000 = $2,000 favorable