Dirickson Incorporated has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours. The company has reported the following actual results for the product for July:
The variable overhead rate variance for the month is closest to:
A) $228 Favorable
B) $246 Unfavorable
C) $246 Favorable
D) $228 Unfavorable

Question

Dirickson Incorporated has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.  The company has reported the following actual results for the product for July:
 The variable overhead rate variance for the month is closest to:
A) $228 Favorable 
B) $246 Unfavorable 
C) $246 Favorable 
D) $228 Unfavorable

Quizplus · Accepted Answer

To calculate the variable overhead rate variance, we need to first calculate the actual direct labor-hours worked:
Actual Direct Labor-Hours = Actual Labor Hours x Actual Production = 1,525 x 800 = 1,220,000

Next, we can calculate the amount of variable overhead that should have been applied based on the standard rate:
Standard Variable Overhead Rate = Variable Manufacturing Overhead / Standard Direct Labor-Hours = $2,440 / 1,200 = $2.03 per DLH
Expected Variable Overhead = Standard Variable Overhead Rate x Actual Direct Labor-Hours = $2.03 x 1,220,000 = $2,476,600

Finally, we can calculate the variable overhead rate variance:
Variable Overhead Rate Variance = Actual Variable Overhead - Expected Variable Overhead
Actual Variable Overhead = $2,500,000
Variable Overhead Rate Variance = $2,500,000 - $2,476,600 = $23,400 unfavorable

Therefore, the closest answer choice is B) $246 Unfavorable.

Dirickson Incorporated Has Provided the Following Data Concerning One of the Products