Allbrand Company uses standard costs for their manufacturing division. Standards specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data: At the end of the year, actual data were as follows:
How much is the spending (price)variance for variable overhead?

Question

Allbrand Company uses standard costs for their manufacturing division. Standards specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data:  At the end of the year, actual data were as follows:
 How much is the spending (price)variance for variable overhead?

Quizplus · Accepted Answer

To calculate the spending (price) variance, we need to compare the actual variable overhead rate per direct labor hour with the budgeted rate per direct labor hour.

Budgeted variable overhead = $24,000
Budgeted direct labor hours = 24,000 / $2 = 12,000 DLH
Budgeted variable overhead rate per DLH = $24,000 / 12,000 DLH = $2 per DLH

Actual variable overhead = $25,200
Actual direct labor hours = 12,800 DLH
Actual variable overhead rate per DLH = $25,200 / 12,800 DLH = $1.96875 per DLH

Spending (price) variance = (Actual rate - Budgeted rate) x Actual direct labor hours
= ($1.96875 - $2) x 12,800 DLH
= $(-0.03125) x 12,800 DLH
= -$400

Since the actual variable overhead rate is lower than the budgeted rate, the spending (price) variance is favorable. Therefore, the answer is C) $240 Favorable.

Allbrand Company Uses Standard Costs for Their Manufacturing Division