A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company bases its variable manufacturing overhead standards on direct labor-hours.
The following data pertain to operations for the last month:

-The variable overhead rate variance is:
A) $1,000 Favorable
B) $1,000 Unfavorable
C) $3,500 Unfavorable
D) $3,500 Favorable

Question

A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company bases its variable manufacturing overhead standards on direct labor-hours.
  The following data pertain to operations for the last month:
 
-The variable overhead rate variance is:
A) $1,000 Favorable 
B) $1,000 Unfavorable 
C) $3,500 Unfavorable 
D) $3,500 Favorable

Quizplus · Accepted Answer

AH × AR = $70,000
Total variable overhead spending variance = (AH × AR) - (SH × SR)
$4,550 F = $70,000 - (3,550 setups × SR)
-$4,550 = $70,000 - (3,550 setups × SR)
3,550 setups × SR = $70,000 + $4,550
3,550 setups × SR = $74,550
SR = $74,550 ÷ 3,550 setups
SR = $21 per setup
Variable overhead rate variance = (AH × AR) − (AH × SR)
= ($70,000) − (3,500 setups × $21 per setup)
= $70,000 − $73,500
= $3,500 F

A Manufacturing Company That Has Only One Product Has Established