Bluecap Co. uses a standard cost system and flexible budgets for control purposes. The following budgeted information pertains to 2019:$\begin{array}{lrr}\text { Denominator volume-number of units }&8,000\\text { Denominator volume-percent of capacity }&80\%\
\text { Denominator volume-standard direct labor hours (DLHs) } & 24,000 \
\text { Budgeted variable factory overhead cost at denominator volume } & \$103,200 \
\text { Total standard factory overhead rate per DLH } &\$ 15.10
\end{array}$During 2019, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2020 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs.
The variable overhead spending variance in 2019 for Bluecap Co. (to the nearest whole dollar) was:
A) $6,000 unfavorable.
B) $8,000 unfavorable.
C) $9,200 favorable.
D) $11,440 unfavorable.
E) $17,440 unfavorable.

Question

Quizplus · Accepted Answer

The variable overhead spending variance is calculated by comparing the actual variable overhead costs to the budgeted (or standard) variable overhead costs for the actual activity level. Given that the total overhead variance was $14,000 unfavorable and $6,000 of this was due to fixed overhead, the variable portion of the variance is $8,000 ($14,000 total variance - $6,000 fixed overhead variance). However, this $8,000 does not directly represent the variable overhead spending variance; it includes both the spending and efficiency variances for variable overhead. To find the spending variance specifically, we need to calculate the expected variable overhead cost based on the actual activity and compare it to the actual variable overhead cost.The budgeted variable overhead rate per DLH can be calculated as follows: Budgeted variable factory overhead cost at denominator volume / Denominator volume-standard direct labor hours (DLHs) = $103,200 / 24,000 DLHs = $4.30 per DLH.Given that Bluecap worked 28,000 DLHs, the expected variable overhead at the actual activity level would be 28,000 DLHs * $4.30 per DLH = $120,400.The actual variable overhead cost can be inferred by subtracting the fixed overhead variance from the total actual overhead cost more than the flexible budget. Since the total overhead variance is $14,000 unfavorable and $6,000 of this is due to fixed overhead, the actual variable overhead cost was $8,000 more than the flexible budget for variable overhead. The flexible budget for variable overhead would be based on the actual activity, which we calculated as $120,400. Therefore, the actual variable overhead cost was $120,400 + $8,000 = $128,400.The variable overhead spending variance is the difference between the actual variable overhead cost and the expected (or budgeted) variable overhead cost at the actual activity level. However, the information provided does not specify the actual variable overhead cost directly, only the total variance and the portion attributable to fixed overhead. Given the calculation approach and the information provided, the correct answer cannot be directly calculated from the given data without making assumptions about the actual variable overhead cost. The provided explanation aimed to clarify the calculation process for a variable overhead spending variance, but it appears there might have been a misunderstanding in the interpretation of the given information.

Bluecap Co During 2019, Bluecap Worked 28,000 DLHs and Manufactured 9,600 Units