Question

JT Engineering has determined that it should cost $14,000 indirect materials, $12,600 indirect labor, and $6,200 in total overhead to produce 1,000 widgets. During the most recent period, JT actually spent $13,860 indirect materials, $12,420 indirect labor, and $6,500 in total overhead to produce 1,000 widgets. What is JT’s total variance? Is it favorable or unfavorable?

Answer 1

• total variance: -$20
• favorable

Explanation:

The estimated cost is ...

$14000 +12600 +6200 = $32800

The actual cost is ...

$13860 +12420 +6500 = $32780

The variance is the difference between actual cost and predicted cost:

$32,780 - 32800 = -$20.

It is favorable when actual costs are lower than predicted.