Miguez Corporation makes a product with the following standard costs: The company budgeted for production of 3,300 units in September, but actual production was 3,200 units. The company used 6,140 liters of direct material and 1,750 direct labor-hours to produce this output. The company purchased 6,500 liters of the direct material at $7.90 per liter. The actual direct labor rate was $31.10 per hour and the actual variable overhead rate was $2.60 per hour.The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.The variable overhead rate variance for September is:
A) $128 Favorable
B) $175 Unfavorable
C) $175 Favorable
D) $128 Unfavorable

Question

Miguez Corporation makes a product with the following standard costs:  The company budgeted for production of 3,300 units in September, but actual production was 3,200 units. The company used 6,140 liters of direct material and 1,750 direct labor-hours to produce this output. The company purchased 6,500 liters of the direct material at $7.90 per liter. The actual direct labor rate was $31.10 per hour and the actual variable overhead rate was $2.60 per hour.The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.The variable overhead rate variance for September is:
A) $128 Favorable 
B) $175 Unfavorable 
C) $175 Favorable 
D) $128 Unfavorable

Quizplus · Accepted Answer

To calculate the variable overhead rate variance, we need to compare the actual variable overhead rate per hour to the standard variable overhead rate per hour, and then multiply the difference by the actual number of hours worked.

Standard variable overhead rate per hour = $1.80 (given)

Actual variable overhead rate per hour = $2.60 (given)

Actual hours worked = 1,750

Variable overhead rate variance = (Actual variable overhead rate per hour - Standard variable overhead rate per hour) x Actual hours worked
= ($2.60 - $1.80) x 1,750
= $875 Favorable

Therefore, the variable overhead rate variance for September is $875 Favorable, which means that the actual variable overhead rate per hour was higher than the standard variable overhead rate per hour, but the company used fewer direct labor-hours than expected, resulting in a favorable variance. Option C is the correct answer.

Miguez Corporation Makes a Product with the Following Standard Costs