Mason, Inc. uses a standard costing system. Overhead costs are allocated based on direct labour hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labour hour, respectively. Data relevant for the current period include: The variable overhead spending variance is:
A) $930 Favourable
B) $2,070 Unfavourable
C) $33,000 Unfavourable
D) $3,300 Unfavourable

Question

Mason, Inc. uses a standard costing system. Overhead costs are allocated based on direct labour hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labour hour, respectively. Data relevant for the current period include:  The variable overhead spending variance is:
A) $930 Favourable 
B) $2,070 Unfavourable 
C) $33,000 Unfavourable 
D) $3,300 Unfavourable

Quizplus · Accepted Answer

Variable overhead spending variance = Actual variable overhead - (Standard variable overhead rate x Actual direct labour hours)

= $22,470 - ($1 x 18,000)

= $22,470 - $18,000

= $4,470 Unfavourable

Therefore, the correct answer is B, $2,070 Unfavourable (since $4,470 is Unfavourable, whereas $2,070 is the difference between the Unfavourable variance and the Fixed overhead variance of $2,400 Favourable).