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: At the end of the year, actual data were as follows:
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:  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 price variance for variable overhead, we need to use the following formula:

Price Variance = (Actual Price - Standard Price) x Actual Quantity

Actual Price = $74,600 / 12,000 units = $6.22 per unit
Standard Price = $7.00 per DLH

Price Variance = ($6.22 - $7.00) x 36,000 DLHs = -$28,080

Since the result is negative, it means that the actual price was lower than the standard price, resulting in a favorable variance. Therefore, the correct answer is B) $6,300 Unfavorable.

Zennick Fashion Products Uses Standard Costs for Their Manufacturing Division