Question

Druid Company makes a single product and uses a standard costing system that applies overhead on the basis of direct labor hours. They recently used 2,000 labor hours to produce 400 units. Their static budget indicated expectations of 500 units, 3,000 DLH and $60,000 in variable overhead. Actual VOH totaled $30,000. What was the variable overhead spending variance?

Please indicate favorable variances with an "f" and unfavorable variances with a "u"

(Round to the nearest dollar at the end of your calculations)

Answer 1

Variable Overhead Spending Variance

Variable Overhead Spending Variance = Actual Variable Overhead – [Actual Labor Hours x Standard Rate per hour]

Actual Variable Overhead = $30,000

Actual Labor Hours = 2,000 Labor Hours

Standard Rate per hour = $20 per Labor Hour [$60,000 / 3,000 Labor Hours]

Therefore, The Variable Overhead Spending Variance = Actual Variable Overhead – [Actual Labor Hours x Standard Rate per hour]

= $30,000 – [2,000 Labor Hours x $20 per hour]

= $30,000 – 40,000

= $10,000 F [Favourable]

“Variable Overhead Spending Variance = $10,000 F [Favourable]”