Ketone Inc.produces small engines.For last year's operations, the following data were gathered: Ketone Inc.employs a standard costing system.During the year, a variable overhead rate of $5.00 was used.The labor standard requires 1 hour per unit produced.The variable overhead spending and efficiency variances are:

A) $176,000 U and $19,000 U.
B) $150,000 U and $24,000 F.
C) $400,000 U and $50,000 U.
D) $200,000 U and $40,000 F.
E) None of these

Question

Ketone Inc.produces small engines.For last year's operations, the following data were gathered: Ketone Inc.employs a standard costing system.During the year, a variable overhead rate of $5.00 was used.The labor standard requires 1 hour per unit produced.The variable overhead spending and efficiency variances are:

A) $176,000 U and $19,000 U. 
B) $150,000 U and $24,000 F. 
C) $400,000 U and $50,000 U. 
D) $200,000 U and $40,000 F. 
E) None of these

Quizplus · Accepted Answer

Variable overhead spending variance = Actual variable overhead - (Actual direct labor hours worked × Standard variable overhead rate) = $1,000,000 - ($5.00 × 120,000) = $400,000 U
Variable overhead efficiency variance = (Actual hours - Standard hours) × Standard variable overhead rate = [120,000 - (110,000 × 1)] × $5.00 = $50,000 U