Budgeted overhead for Mengotti Company at normal capacity of 30,000 direct labor hours is $4.50 per hour variable and $3 per hour fixed. In May, $232,500 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed. The overhead controllable variance is
A) $3,750 favorable.
B) $1,500 favorable.
C) $7,500 favorable.
D) $7,500 unfavorable.

Question

Quizplus · Accepted Answer

The overhead controllable variance measures the difference between the actual variable overhead and the budgeted variable overhead, adjusting for any change in usage of the cost driver (in this case, direct labor hours).

The formula for the overhead controllable variance is:

(Actual hours worked x Actual variable overhead rate) - (Actual hours worked x Budgeted variable overhead rate)

In this case:

(31,500 x $4.50) - (31,500 x $4.00) = $1,500 favorable

Therefore, the answer is B) $1,500 favorable.

Budgeted Overhead for Mengotti Company at Normal Capacity of 30,000