Figure 17-7
Orient Company has developed the following standards for one of its products: $\begin{array}{ll}
\text { Direct materials } & 10 \text { pounds } \times £ 8 \text { per pound } \
\text { Direct labour } & 6 \text { hours } \times £ 20 \text { per hour } \
\text { Variable overhead } & 6 \text { hours } \times £ 6 \text { per hour }
\end{array}$ The following activities occurred during the month of November: $\begin{array}{ll}
\text { Materials purchased } & 8,000 \text { pounds costing } £ 70,000 \
\text { Materials used } & 6,500 \text { pounds } \
\text { Units produced } & 600 \text { units } \
\text { Direct labour } & 4,200 \text { hours costing } £ 75,600 \
\text { Actual variable overhead } & £ 26,400
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-7. Orient's variable overhead spending variance would be
A)£4,800 favourable.
B)£4,800 unfavourable.
C)£3,600 unfavourable.
D)£1,200 unfavourable.

Question

Quizplus · Accepted Answer

The variable overhead spending variance is calculated as the difference between the actual variable overhead costs and the standard variable overhead costs for the actual hours worked. The standard variable overhead cost is £6 per hour for 4,200 hours (the actual hours worked), which equals £25,200. The actual variable overhead was £26,400. Therefore, the variance is £26,400 - £25,200 = £1,200 unfavourable.

Figure 17-7 Orient Company Has Developed the Following Standards for One

Figure 17-7
Orient Company Has Developed the Following Standards for One