Zennick Fashion Products uses standard costs for their manufacturing division. Standards specify 3.0 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data:
$$\begin{array}{l}
\begin{array} { l l }
\text { Production volume: } & 1,000 \text { units } \
\text { Estimated variable overhead costs: } & \$ 120,000 \
\text { Estimated direct labor hours: } & 3,000 \text { hours }
\end{array}\
\text { At the end of the year, actual data were as follows: }\
\begin{array} { l l }
\text { Production volume: } & 1,500 \text { units } \
\text { Actual variable overhead costs: } & \$ 174,300 \
\text { Actual direct labor hours: } & 4,200 \text { hours }
\end{array}
\end{array}$$
-
How much is the spending (price) variance for variable overhead?

Question

Zennick Fashion Products uses standard costs for their manufacturing division. Standards specify 3.0 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data:
$$\begin{array}{l}
\begin{array} { l l } 
\text { Production volume: } & 1,000 \text { units } \
\text { Estimated variable overhead costs: } & \$ 120,000 \
\text { Estimated direct labor hours: } & 3,000 \text { hours }
\end{array}\
\text { At the end of the year, actual data were as follows: }\
\begin{array} { l l } 
\text { Production volume: } & 1,500 \text { units } \
\text { Actual variable overhead costs: } & \$ 174,300 \
\text { Actual direct labor hours: } & 4,200 \text { hours }
\end{array}
\end{array}$$
-
How much is the spending (price) variance for variable overhead?

Quizplus · Accepted Answer

The spending (price) variance for variable overhead is calculated as the difference between the actual variable overhead costs and the expected (standard) variable overhead costs for the actual hours worked. The standard variable overhead cost per hour is $\$120,000 / 3,000$ hours = \$40 per hour. For 4,200 actual hours, the expected variable overhead costs would be $4,200 \times \$40 = \$168,000$. The actual variable overhead costs were \$174,300, so the spending variance is $\$174,300 - \$168,000 = \$6,300$ Unfavorable, because the actual costs were higher than expected.

Zennick Fashion Products Uses Standard Costs for Their Manufacturing Division