Adams Co. uses the following standard to produce a single unit of its product: variable overhead (2 hrs. @ $3/hr.) $6. Actual data for the month show variable overhead costs of $150,000, and 24,000 units produced. The total variable overhead variance is:
A) $6,000F.
B) $6,000U.
C) $78,000U.
D) $78,000F.
E) $0.

Question

Quizplus · Accepted Answer

The total variable overhead variance is calculated as the difference between the actual variable overhead costs and the standard variable overhead costs for the actual production. The standard variable overhead cost per unit is $6 (2 hours @ $3/hour). For 24,000 units, the standard cost is 24,000 units * $6/unit = $144,000. The actual variable overhead costs are $150,000. Therefore, the total variable overhead variance is $150,000 - $144,000 = $6,000 Unfavorable (U), because the actual costs were higher than the standard costs.

Adams Co Uses the Following Standard to Produce a Single Unit