Tyro Company has a standard cost system that applies manufacturing overhead to units of product on the basis of direct labour hours (DLHs).The following information is available:
$\begin{array}{|l|r|}
\hline \text { Actual Total Overhead Costs } & \$ 15,000 \
\hline \text { Actual Fixed Overhead Costs } & \$ 7,200 \
\hline \text { Budgeted Fixed Overhead Costs } & \$ 7,000 \
\hline \text { Actual Hours Worked } & 3,500 \text { DLHs } \
\hline \text { Standard Hours Allowed for the Output } & 3,800 \text { DLHs } \
\hline \text { Variable Overhead Rate } & \$ 2.50 \text { per DLH } \
\hline
\end{array}$
Based on these data,what was the variable overhead spending variance?
A) $750 unfavourable.
B) $950 favourable.
C) $1,500 unfavourable.
D) $1,700 favourable.

Question

Quizplus · Accepted Answer

The variable overhead spending variance is calculated as the difference between the actual variable overhead costs and the budgeted variable overhead costs. The actual variable overhead costs are equal to the actual total overhead costs minus the actual fixed overhead costs, or $15,000 - $7,200 = $7,800. The budgeted variable overhead costs are equal to the variable overhead rate multiplied by the standard hours allowed for the output, or $2.50 per DLH * 3,800 DLHs = $9,500. Therefore, the variable overhead spending variance is $7,800 - $9,500 = $1,700 favourable.

Tyro Company Has a Standard Cost System That Applies Manufacturing