Question

Assume that machine hours is the cost driver for overhead. The difference between the actual variable overhead incurred and the applied variable overhead is the ___________.

1) volume variance
2) net overhead variance
3) efficiency variance
4) sum of the spending and efficiency variances
5) spending variance

Answer 1

The difference between the actual variable overhead incurred and the applied variable overhead is the spending variance.

Step-by-step explanation:

The difference between the actual variable overhead incurred and the applied variable overhead is the spending variance. This variance measures whether the business has spent more or less on variable overhead than what was expected (applied) based on the machine hours that drove the cost. When variable costs, such as labor and raw materials, fluctuate with the level of output, a spending variance occurs if the actual cost deviates from what was planned or applied. For instance, in a barbershop, if fixed costs for space and equipment are consistent, but the cost of hiring barbers (a variable cost) differs from the standard cost for the actual machine hours worked, it leads to a spending variance.