Question

Variable Overhead Variances
Morgan Tax Company considers 6,000 direct labor hours or 300 tax returns its normal monthly capacity. Its standard variable overhead rate is $3 per direct labor hour. During the current month, $15,400 of variable overhead cost was incurred in working 5,600 direct labor hours to prepare 270 tax returns. Determine the following variances, and indicate whether each is favorable or unfavorable:

Determine the following variances:

Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable.

Variable Overhead Variances
Actual cost:
Split cost:
Standard cost:
a. Variable overhead spending
b. Variable overhead efficiency

Answer 1

• All working forms part of the answer

Working	Variable Overhead Variances
A	Actual Cost	$           15,400.00
B	Split Cost	$           16,800.00	[5600 hours x $ 3]
C	Standard Cost	$           16,200.00	[270 returns x 6000/300 x $ 3]
D = A - B	Variable Overhead Spending	$                 800.00	Favourable
E = C - B	Variable Overhead efficiency	$                 600.00	Unfavourable