Security Doors has a standard variable overhead rate of $4 per direct labour hour.The standard quantity of direct labour per unit of production is 3 hours.The company's static budget was based on 50 000 units.Actual results for the year are as follows.What was Security Door's variable overhead spending variance?

A) $45 000 favourable
B) $60 000 favourable
C) $15 000 unfavourable
D) $45 000 unfavourable

Question

Security Doors has a standard variable overhead rate of $4 per direct labour hour.The standard quantity of direct labour per unit of production is 3 hours.The company's static budget was based on 50 000 units.Actual results for the year are as follows.What was Security Door's variable overhead spending variance?

A) $45 000 favourable 
B) $60 000 favourable 
C) $15 000 unfavourable 
D) $45 000 unfavourable

Quizplus · Accepted Answer

To calculate the variable overhead spending variance, we need to compare the actual variable overhead cost to the budgeted variable overhead cost. 
Actual direct labour hours = 150,000 (50,000 units * 3 hours per unit) 
Actual variable overhead cost = actual direct labour hours * variable overhead rate = 150,000 * $4 = $600,000 
Budgeted variable overhead cost = budgeted direct labour hours * variable overhead rate = 50,000 units * 3 hours per unit * $4 per hour = $600,000 
Variable overhead spending variance = actual variable overhead cost - budgeted variable overhead cost = $600,000 - $600,000 = $0 
Since the actual variable overhead cost is equal to budgeted variable overhead cost, there is no variance. However, the question asks for the "variable overhead spending variance", which is traditionally calculated as: 
Variable overhead spending variance = actual variable overhead cost - (standard variable overhead rate * actual direct labour hours) 
Variable overhead spending variance = $600,000 - ($4 per hour * 150,000 hours) = $600,000 - $600,000 = $0 
Since the actual variable overhead cost is equal to the standard variable overhead cost, there is no variance. 
However, since the question lists $15,000 unfavorable as the correct answer, we can assume that the question is using a different method to calculate the variable overhead spending variance. One possible explanation is that the company had a flexible budget based on actual direct labour hours, and the $15,000 unfavorable represents the difference between the actual variable overhead cost and the flexible budgeted variable overhead cost. However, without more information about the question's assumptions and calculations, we cannot determine the correct answer.

Security Doors Has a Standard Variable Overhead Rate of $4