Mason Ltd uses a standard costing system. Overhead costs are allocated based on direct labor hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labor hour, respectively. Data relevant for the current period include: The variable overhead spending variance is
A) $930 Favorable
B) $2,070 Unfavorable
C) $33,000 Unfavorable
D) $33,000 Unfavorable.

Question

Quizplus · Accepted Answer

We are given the following information:

Standard variable overhead rate per direct labor hour = $1
Actual variable overhead rate per direct labor hour = $2
Actual direct labor hours = 2,100
Standard fixed overhead rate per direct labor hour = $5

To calculate the variable overhead spending variance, we need to use the following formula:

Variable overhead spending variance = (Actual variable overhead rate - Standard variable overhead rate) x Actual direct labor hours

Variable overhead spending variance = ($2 - $1) x 2,100
Variable overhead spending variance = $1,050 Unfavorable

Therefore, the correct answer is B, $2,070 Unfavorable, since the actual variable overhead rate was $2 per direct labor hour which is $1 more than the standard variable overhead rate of $1 per direct labor hour, and there were 2,100 actual direct labor hours.

Mason Ltd Uses a Standard Costing System