Epley Corporation makes a product with the following standard costs: In July the company produced 3,300 units using 12,240 pounds of the direct material and 2,760 direct labor-hours. During the month, the company purchased 13,000 pounds of the direct material at a cost of $35,100. The actual direct labor cost was $51,612 and the actual variable overhead cost was $20,148. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead rate variance for July is:
A)$1,932 U
B)$1,932 F
C)$1,848 U
D)$1,848 F

Question

Epley Corporation makes a product with the following standard costs:  In July the company produced 3,300 units using 12,240 pounds of the direct material and 2,760 direct labor-hours. During the month, the company purchased 13,000 pounds of the direct material at a cost of $35,100. The actual direct labor cost was $51,612 and the actual variable overhead cost was $20,148. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead rate variance for July is:
A)$1,932 U 
B)$1,932 F 
C)$1,848 U 
D)$1,848 F

Quizplus · Accepted Answer

Variable overhead rate variance = (Actual variable overhead rate - Budgeted variable overhead rate) x Actual direct labor hours

Budgeted variable overhead rate = Budgeted variable overhead cost / Budgeted direct labor hours
= ($12,240 + $20,148) / 2,760
= $8.18 per direct labor hour

Actual variable overhead rate = Actual variable overhead cost / Actual direct labor hours
= $20,148 / 2,760
= $7.30 per direct labor hour

Variable overhead rate variance = ($7.30 - $8.18) x 2,760 = $1,932 F

Therefore, the answer is B) $1,932 F

Epley Corporation Makes a Product with the Following Standard Costs