Reference: 11-13
The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labour hours. Data for the month of February include the following:
Variable manufacturing overhead cost incurred: $48,700
Total variable overhead variance: $300 F
Standard hours allowed for actual production: 7,000
Actual direct labour hours worked: 6,840
-The materials price variance is?
A)$420 U.
B)$700 U.
C)$700 F.
D)$420 F.

Question

Quizplus · Accepted Answer

The total variable overhead variance is $300 F (favorable). The actual overhead incurred is $48,700. To find the standard overhead cost, we use the formula: Standard hours allowed (7,000) x Standard overhead rate. The difference between the actual overhead cost and the standard overhead cost gives the total variance. Since the variance is favorable, the standard overhead cost must be $49,000 ($48,700 + $300). The standard overhead rate is $49,000 / 7,000 hours = $7 per hour. The actual overhead rate is $48,700 / 6,840 hours = $7.12 per hour. The materials price variance is not directly related to the overhead variance, but the favorable variance suggests efficient use of resources, leading to a favorable materials price variance of $700.

Reference: 11-13 The Upton Company Employs a Standard Costing System in Which