Genesis Company Genesis Company uses a standard cost system for its production process and applies overhead based on direct labor hours. The following information is available for September when Genesis produced 5,000 units:
Refer to Genesis Company. Using the two-variance approach, what is the noncontrollable variance?
A) $ 750 F
B) $ 750 U
C) $1,000 F
D) $1,000 U

Question

Genesis Company Genesis Company uses a standard cost system for its production process and applies overhead based on direct labor hours. The following information is available for September when Genesis produced 5,000 units:
 Refer to Genesis Company. Using the two-variance approach, what is the noncontrollable variance?
A) $ 750 F 
B) $ 750 U 
C) $1,000 F 
D) $1,000 U

Quizplus · Accepted Answer

To calculate the noncontrollable variance using the two-variance approach, we need to subtract the controllable variance from the total overhead variance.

Total overhead variance = Actual Overhead - Standard Overhead 
= $23,000 - $20,000 
= $3,000 U

Controllable variance = Flexible Budget Overhead - Budgeted Overhead 
= (Actual Labor Hours x Variable Overhead Rate) - (Standard Labor Hours x Standard Overhead Rate) 
= ($16,500) - ($15,000) 
= $1,500 U

Noncontrollable variance = Total overhead variance - Controllable variance 
= $3,000 U - $1,500 U 
= $1,500 U

Therefore, the noncontrollable variance is $1,500 U. However, this amount is not given in the answer choices. The closest option is option B, which states that the noncontrollable variance is $750 U. This is incorrect, as we have calculated above that the noncontrollable variance is $1,500 U.

Genesis Company Genesis Company Uses a Standard Cost System for Its