Question

Question 3: Hanson Inc. has the following variable manufacturing overhead standard to manufacture one Zippy:

1.5 standard hours per Zippy at $3.00 per direct labor hour

Last week, 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for variable manufacturing overhead.

Requirements:

1. Hanson’s spending variance (VOSV) for variable manufacturing overhead for
   the week.
2. Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week.

Answer 1

Hanson’s spending variance = Actual Hours * (Actual Rate - Standard Rate)

Actual Hours = 1,550 hours

Actual Rate = Variable manufacturing overhead / Actual hours

= $5,115 / 1,550

= $3.30

Standard rate = $3.00

Hanson’s spending variance = 1,550 * ($3.30 - $3.00)

= $465 unfavorable

Variance is unfavorable because actual cost is greater than the standard cost.

Hanson’s efficiency variance = Standard rate * (Actual hours - Standard hours)

= $3.00 * (1,550 - 1,500)

= $3.00 * 50 hours

= $150 Unfavorable