Ravena Labs., Incorporated makes a single product which has the following standards:Direct materials: 2.5 ounces at $20 per ounceDirect labor: 1.4 hours at $12.50 per hourVariable manufacturing overhead: 1.4 hours at 3.50 per hourVariable manufacturing overhead is applied on the basis of standard direct labor-hours. The following data are available for October:3,750 units of compound were produced during the month.There was no beginning direct materials inventory.Direct materials purchased: 12,000 ounces for $225,000.The ending direct materials inventory was 2,000 ounces.Direct labor-hours worked: 5,600 hours at a cost of $67,200.Variable manufacturing overhead costs incurred amounted to $18,200.Variable manufacturing overhead applied to products: $18,375.The variable overhead rate variance for October is:
A) $1,400 Favorable
B) $1,900 Unfavorable
C) $3,750 Favorable
D) $4,375 Unfavorable

Question

Quizplus · Accepted Answer

The formula for calculating the variable overhead rate variance is:

Actual Hours worked x Actual variable overhead rate - Applied variable overhead rate x Actual hours worked

Actual hours worked = 5,600
Actual variable overhead rate = actual variable overhead costs / actual direct labor hours = $18,200 / 5,600 = $3.25
Applied variable overhead rate = $3.50

Therefore, the variable overhead rate variance is:

5, 600 x $3.25 - 5,600 x $3.50 = $1,400 favorable

Option A is the correct answer.