Variable overhead spending variances can result from unattainable variable allocation rates. In turn, those rates may be caused by
A) I only
B) I and II only
C) I and III only
D) I, II, and III

Question

Variable overhead spending variances can result from unattainable variable allocation rates. In turn, those rates may be caused by 
A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III

Quizplus · Accepted Answer

Only statements I and II are correct. Variable overhead spending variances result from the difference between actual variable overhead costs incurred and the budgeted amount. The budgeted amount is derived from a predetermined variable allocation rate, but if this rate is set too high, it can lead to unattainable cost targets and unfavorable spending variances. While statement III is closely related to variable overhead variances, it refers specifically to the fixed overhead volume variance, which is a separate measure of efficiency in production processes.

Variable Overhead Spending Variances Can Result from Unattainable Variable Allocation