Descamps 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) $78 Favorable
B) $84 Favorable
C) $78 Unfavorable
D) $84 Unfavorable

Question

Descamps 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) $78 Favorable 
B) $84 Favorable 
C) $78 Unfavorable 
D) $84 Unfavorable

Quizplus · Accepted Answer

First, calculate the actual variable overhead cost per hour:

Actual variable overhead cost = $18,540
Actual direct labor hours = 2,100
Actual variable overhead rate = Actual variable overhead cost / Actual direct labor hours
Actual variable overhead rate = $18,540 / 2,100 = $8.82 per direct labor hour

Next, calculate the expected variable overhead rate per direct labor hour:

Standard variable overhead rate per direct labor hour = $8.50 per direct labor hour

Finally, calculate the variable overhead rate variance:

Variable overhead rate variance = Actual variable overhead rate - Standard variable overhead rate
Variable overhead rate variance = $8.82 - $8.50 = $0.32 unfavorable per direct labor hour

To find the total variance, multiply the variable overhead rate variance by the actual direct labor hours:

Total variable overhead rate variance = Variable overhead rate variance x Actual direct labor hours
Total variable overhead rate variance = $0.32 x 2,100 = $672 unfavorable

Since the variance is unfavorable, the answer is either C or D. C is the best choice because it is the closest answer to $672.

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