Long,Inc.produces small engines.For last year's operations,the following data were gathered: $\begin{array}{ll}
\text { Units produced: } & 100,000 \
\text { Direct labour: } & 160,000 \text { hours }(\$ 12.00 \text { per } \
& \text { hour } \
\text { Actual variable overhead: } & \$ 1,300,000
\end{array}$ Long,Inc.employs a standard costing system.During the year,a variable overhead rate of $8.00 per hour was used.The labour standard requires 1.5 hours per unit produced.What are the variable overhead spending and efficiency variances,respectively?
A) $20,000 U and $80,000 U
B) $20,000 U and $80,000 F
C) $100,000 U and $20,000 U
D) $100,000 U and $20,000 F

Question

Quizplus · Accepted Answer

The variable overhead spending variance is the difference between the actual variable overhead and the budgeted variable overhead. The budgeted variable overhead is the standard variable overhead rate multiplied by the actual hours worked. The standard variable overhead rate is $8.00 per hour, and the actual hours worked are 160,000 hours. Therefore, the budgeted variable overhead is $8.00 per hour * 160,000 hours = $1,280,000. The actual variable overhead is $1,300,000. Therefore, the variable overhead spending variance is $1,300,000 - $1,280,000 = $20,000 U.The variable overhead efficiency variance is the difference between the actual variable overhead and the variable overhead that would have been incurred if the standard hours had been worked. The standard hours are the standard hours per unit multiplied by the actual units produced. The standard hours per unit are 1.5 hours per unit, and the actual units produced are 100,000 units. Therefore, the standard hours are 1.5 hours per unit * 100,000 units = 150,000 hours. The variable overhead that would have been incurred if the standard hours had been worked is $8.00 per hour * 150,000 hours = $1,200,000. Therefore, the variable overhead efficiency variance is $1,300,000 - $1,200,000 = $80,000 U.

Long,IncProduces Small Engines Long,IncEmploys a Standard Costing System