Formidable Company collected the following information: $\begin{array}{ll}\text { Standard costs per unit: }\
\text { Variable overhead } & 4 \text { machine hours } @ \$ 6 \text { per machine hour } \
\text { Fixed overhead } & 4 \text { machine hours } @ \$ 10 \text { per machine hour }\\
\text { Actual output } & 20,000 \text { units } \
\text { Denominator (normal capacity) output } & 21,000 \text { units } \
\text { Actual machine hours } & 79,000 \text { machine hours } \
\text { Actual variable overhead cost } & \$ 540,000 \
\text { Actual fixed overhead cost } & \$ 810,000\
\end{array}$ Using the two variance method, what is the total variance?
A)$30,000 (U)
B)$70,000 (U)
C)$70,000 (F)
D)$30,000 (F)

Question

Quizplus · Accepted Answer

The total variance is calculated by adding the variable overhead variance and the fixed overhead variance. Variable overhead variance:Standard cost = 4 machine hours/unit * $6/machine hour = $24/unitActual cost = $540,000 / 20,000 units = $27/unitVariance = ($27 - $24) * 20,000 units = $60,000 UnfavorableFixed overhead variance:Standard cost = 4 machine hours/unit * $10/machine hour = $40/unitApplied fixed overhead = 21,000 units (denominator output) * $40 = $840,000Variance = $810,000 (actual) - $840,000 (applied) = $30,000 FavorableTotal variance = $60,000 (U) + $30,000 (F) = $30,000 Unfavorable.

Formidable Company Collected the Following Information Using the Two Variance Method, What Is the Total Variance