Question

Variable factory overhead Budgeted based on standard hours allowed $80,000 Actual 85,000 Fixed factory overhead Budgeted 25,000 Actual 27,000. In a three-way analysis of variance, the department's unfavorable spending variance for July was

Option 1: $2,000

Option 2: $5,000

Option 3: $7,000

Option 4: $10,000

Answer 1

The department's unfavorable spending variance for July was Option 3, $7,000.

Step-by-step explanation:

Variable factory overhead budgeted based on standard hours allowed was $80,000, while the actual spending was $85,000. This results in an unfavorable spending variance of $5,000.

Fixed factory overhead budgeted was $25,000, and the actual spending was $27,000. This results in an unfavorable spending variance of $2,000.

In a three-way analysis of variance, which compares the budgeted and actual costs of variable and fixed factory overhead, the department's unfavorable spending variance for July would be the sum of the unfavorable variances for variable and fixed factory overhead. Therefore, the department's unfavorable spending variance for July would be $5,000 + $2,000 = $7,000.