Admac Technologies has a standard variable overhead rate of $4.50 per machine hour, and each unit produced has a standard time allowed of three hours.The company's static budget was based on 46,000 units.Actual results for the year follow. Actual units produced: 42,000 Actual machine hours worked: 120,000 Actual variable overhead incurred: $520,000 Admac's variable-overhead spending variance is:
A)$20,000 favorable.
B)$20,000 unfavorable.
C)$27,000 favorable.
D)$27,000 unfavorable.
E)None of the answers is correct.

Question

Quizplus · Accepted Answer

The formula for variable overhead spending variance is:

Variable overhead spending variance = Actual variable overhead incurred - (Standard variable overhead rate x Actual machine hours worked)

Plugging in the actual values, we get:

Variable overhead spending variance = $520,000 - ($4.50 x 120,000)
Variable overhead spending variance = $520,000 - $540,000
Variable overhead spending variance = -$20,000 (unfavorable)

However, since the question asks for the variance in terms of whether it is favorable or unfavorable (not the absolute amount), we need to flip the sign of the answer. Therefore, the answer is:

Variable overhead spending variance = $20,000 (favorable)

Admac Technologies Has a Standard Variable Overhead Rate of $4