Vermeillen Corporation uses a standard costing system in which variable manufacturing overhead is assigned to production on the basis of the number of machine setups. The following data pertain to one month's operations:Variable manufacturing overhead cost incurred: $70,000Total variable manufacturing overhead variance: $4,550 FavorableStandard machine setups allowed for actual production: 3,550Actual machine setups incurred: 3,500 The variable overhead rate variance is:
A) $1,000 Favorable
B) $1,000 Unfavorable
C) $3,500 Unfavorable
D) $3,500 Favorable

Question

Quizplus · Accepted Answer

The formula for calculating the variable overhead rate variance is: 
Actual Variable Overhead - (Standard Variable Overhead Rate x Actual Machine Setups)

Using the given information: 
Actual Variable Overhead = $70,000 
Standard Variable Overhead Rate = Total Variable Overhead Variance / Standard Machine Setups allowed for actual production = $4,550 / 3,550 = $1.28 
Actual Machine Setups = 3,500

Therefore, the variable overhead rate variance = $70,000 - ($1.28 x 3,500) = $3,500 favorable.

Vermeillen Corporation Uses a Standard Costing System in Which Variable