Bluecap Co.uses a standard cost system and flexible budgets for control purposes.The following budgeted information pertains to 2010:
During 2010,Bluecap worked 28,000 direct labor hours and manufactured 9,600 units.The actual factory overhead 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 2011 Bluecap decided to raise the level of operation to 90% of capacity,to manufacture 9,000 units at a budgeted total of 27,000 direct labor hours.The variable overhead spending variance in 2010 is:
A)$6,000 unfavorable.
B)$8,000 unfavorable.
C)$9,200 favorable.
D)$11,440 unfavorable.
E)$17,440 unfavorable.

Question

Bluecap Co.uses a standard cost system and flexible budgets for control purposes.The following budgeted information pertains to 2010: 
During 2010,Bluecap worked 28,000 direct labor hours and manufactured 9,600 units.The actual factory overhead 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 2011 Bluecap decided to raise the level of operation to 90% of capacity,to manufacture 9,000 units at a budgeted total of 27,000 direct labor hours.The variable overhead spending variance in 2010 is:
A)$6,000 unfavorable. 
B)$8,000 unfavorable. 
C)$9,200 favorable. 
D)$11,440 unfavorable. 
E)$17,440 unfavorable.

Quizplus · Accepted Answer

Variable overhead spending variance = Actual variable overhead - (Standard variable overhead rate x Actual hours)

From the given information, we can calculate the standard variable overhead rate as:

$72,000 / 24,000 direct labor hours = $3 per direct labor hour

Using this rate and the actual direct labor hours of 28,000, we can calculate the flexible budget amount for variable overhead as:

$3 x 28,000 = $84,000

We are given that the actual factory overhead was $14,000 greater than the flexible budget amount, and $6,000 of that was due to fixed overhead. This means that the variable overhead spending variance is:

$14,000 - $84,000 + $6,000 = -$64,000

or:

$64,000 unfavorable

Therefore, the correct answer is D) $11,440 unfavorable.