Question

Clover Corporation uses a standard costing system in which variable manufacturing overhead is assigned to production on the basis of the number of machine hours. The following data pertain to one month's operations:

Standard machine hours allowed for actual production: 3,550 MH
Actual machine hours for the month: 4,000 MH
Actual variable manufacturing overhead costs incurred: $ 80,000
Variable overhead spending variance: $ 5,450 Unfavorable
What is variable overhead rate variance?
A. S 9,450.00 unfavorable
B. S9,450.00 favorable
C. 4,000.00 unfavorable
D. 4,000.00 favorable
E. Not determinable

Answer 1

D. 4,000.00 favorable

Step-by-step explanation:

The formula for variable overhead spending variance provided below gives a clue on deriving the correct option.

variable overhead spending variance=actual variable spending overhead-budgeted variable spending overhead.

$5450=$ 80,000-budgeted variable spending overhead

budgeted variable spending overhead=$80,000-$5450=$74550

standard overhead rate=budgeted variable spending overhead/Standard machine hours allowed for actual production

standard overhead rate=$74550 /3550=$21

variable overhead rate variance=( standard rate* Actual machine hrs)-(actual rate*Actual machine hrs)

actual rate=Actual variable manufacturing overhead costs incurred/Actual machine hours for the month=$80,000/4000=$20

variable overhead rate variance=($21*4000)-($20*4000)=$4000(favorable since actual is lower than standard,hence, cost savings)