Fluegge 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 December:
The variable overhead rate variance for the month is closest to:
A) $1,080 Unfavorable
B) $1,080 Favorable
C) $1,148 Unfavorable
D) $1,148 Favorable

Question

Fluegge 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 December:
 The variable overhead rate variance for the month is closest to:
A) $1,080 Unfavorable 
B) $1,080 Favorable 
C) $1,148 Unfavorable 
D) $1,148 Favorable

Quizplus · Accepted Answer

The variable overhead rate variance measures the difference between the actual variable overhead rate and the standard variable overhead rate, multiplied by the actual hours worked.

The actual variable overhead rate is $13,200 ÷ 1,100 hours = $12 per hour.

The standard variable overhead rate is $11 per hour.

The variable overhead rate variance is calculated as follows:

Variance = (Actual rate - Standard rate) x Actual hours 
Variance = ($12 - $11) x 1,100 
Variance = $1,100

Since the actual rate is higher than the standard rate, the variance is unfavorable. Therefore, the closest option is A) $1,080 unfavorable.

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