Hyteck, Inc. is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labour hours, are derived from the master budget. Master Actual
Budget Results
Units produced 2,000 1,820
Direct labour hours 10,000 9,200
Fixed overhead $100,000 $98,000
Variable overhead $160,000 $150,000
Direct labour $100,000 $90,000
The budget variance for variable overhead was:

Question

Quizplus · Accepted Answer

The formula for computing variable overhead spending variance is:
Actual variable overhead - (Standard variable overhead rate x Actual direct labour hours)
= $150,000 - ($16 x 9,200)
= $150,000 - $147,200
= $2,800 U (Unfavorable)
Therefore, the budget variance for variable overhead is $2,800 U. Option A is incorrect because it gives a wrong answer. Option B and D are incorrect because they are not the correct values.