Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were: The variable overhead spending variance was
A) $10,000 F
B) $50,000 U
C) $35,000 U
D) $15,000 U

Question

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were:  The variable overhead spending variance was
A) $10,000 F 
B) $50,000 U 
C) $35,000 U 
D) $15,000 U

Quizplus · Accepted Answer

To calculate the variable overhead spending variance, we need to compare the actual variable overhead costs incurred to the budgeted variable overhead costs based on the actual level of activity.

Budgeted variable overhead costs = $200,000 + ($15 per DLH x 11,000 DLHs*) = $365,000

*Note: Actual level of activity is 11,000 DLHs, which is one thousand hours more than the standard level of activity (10,000 DLHs).

Actual variable overhead costs = $380,000

Variable overhead spending variance = Actual variable overhead costs - Budgeted variable overhead costs

= $380,000 - $365,000

= $15,000 U

Therefore, the correct answer is C) $35,000 U.

Burkett Company Uses a Standard Cost System