Eberley Corporation's cost formula for its manufacturing overhead is $25,700 per month plus $10 per machine-hour. For the month of July, the company planned for activity of 5,900 machine-hours, but the actual level of activity was 5,920 machine-hours. The actual manufacturing overhead for the month was $86,800. The spending variance for manufacturing overhead in July would be closest to:
A)$2,100 U
B)$1,900 F
C)$1,900 U
D)$2,100 F

Question

Quizplus · Accepted Answer

The spending variance is calculated as the difference between the actual manufacturing overhead and the budgeted manufacturing overhead. The budgeted manufacturing overhead is calculated as the fixed cost plus the variable cost per machine-hour multiplied by the actual machine-hours. The fixed cost is $25,700 per month, and the variable cost per machine-hour is $10. The actual machine-hours were 5,920. Therefore, the budgeted manufacturing overhead is $25,700 + (10 * 5,920) = $84,900. The actual manufacturing overhead was $86,800. Therefore, the spending variance is $86,800 - $84,900 = $1,900 U.

Eberley Corporation's Cost Formula for Its Manufacturing Overhead Is $25,700