Austin Brands Company uses standard costs for its 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: $$\begin{array} { | l | l | }
\hline \text { Production volume } & 6,300 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 15,000 \
\hline \text { Budgeted direct labor hours } & 630 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | }
\hline \text { Production volume } & 4,200 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,000 \
\hline \text { Actual direct labor hours } & 480 \text { hours } \
\hline
\end{array}$$ What is the variable overhead cost variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

Question

Austin Brands Company uses standard costs for its 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: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 6,300 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 15,000 \
\hline \text { Budgeted direct labor hours } & 630 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4,200 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,000 \
\hline \text { Actual direct labor hours } & 480 \text { hours } \
\hline
\end{array}$$ What is the variable overhead cost variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

Quizplus · Accepted Answer

The variable overhead cost variance is calculated as the difference between the actual variable overhead costs and the flexible budget for variable overhead costs based on actual production. The flexible budget for 4,200 units is (4,200 units * 0.1 hours/unit * $15,000/630 hours) = $10,000. The actual cost was $15,000, so the variance is $15,000 - $10,000 = $5,000 U. However, the correct calculation should consider the rate per hour, leading to a variance of $3,571 U.

Austin Brands Company Uses Standard Costs for Its Manufacturing Division