Mason, Inc. uses a standard costing system. Overhead costs are allocated based on direct labour hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labour hour, respectively. Data relevant for the current period include: Direct materials purchased 50,000 kg. @ $12 per kg.
Direct materials used 50,000 kg.
Standard quantity of direct materials
For actual production 45,000 kg.
Direct materials standard price $13 per kg.
Direct labour costs incurred 75,000 hours @ $12 per hour
Standard direct labour hours for
Actual production 78,000 hours
Standard direct labour cost per hour $11 per hour
Variable overhead costs incurred $77,070
Fixed overhead costs incurred $381,920
The variable overhead spending variance is:
A)$930 Favourable
B)$2,070 Unfavourable
C)$33,000 Unfavourable
D)$3,300 Unfavourable

Question

Quizplus · Accepted Answer

Variable overhead spending variance = (Actual variable overhead rate - Standard variable overhead rate) x Actual direct labour hours.
Actual variable overhead rate = Variable overhead costs incurred / Actual direct labour hours = $77,070 / 75,000 hours = $1.0276 per hour.
Standard variable overhead rate = $1 per hour.
Variable overhead spending variance = ($1.0276 - $1) x 75,000 hours = $2,070 unfavourable.