Question

Sussex Company uses a standard cost system and prepared the following budget for May when 24,000 machine hours of activity were anticipated: variable overhead, $48,000; fixed overhead: $240,000. Actual data for May were:

Standard machine hours allowed for output attained: 25,000
Actual machine hours worked: 24,000
Variable overhead incurred: $50,000
Fixed overhead incurred: $250,000
The variable-overhead spending and efficiency variances are:
Variable-Overhead Spending Variance Variable-Overhead Efficiency Variance
A. $0 $0
B. $0 $2,000 unfavorable
C. $2,000 unfavorable $0
D. $2,000 favorable $2,000 unfavorable
E. $2,000 unfavorable $2,000 favorable

Answer 1

The variable-overhead spending variance is $2,000 unfavorable and the variable-overhead efficiency variance is $0. Therefore, the variable-overhead spending variance is $2,000 unfavorable.

Step-by-step explanation:

The variable-overhead spending variance is the difference between the actual variable overhead incurred and the standard variable overhead cost that should have been incurred based on the actual level of activity. In this case, the actual variable overhead incurred was $50,000 while the standard variable overhead cost based on the actual machine hours worked was $48,000. Therefore, the variable-overhead spending variance is $2,000 unfavorable.

The variable-overhead efficiency variance is the difference between the standard variable overhead cost that should have been incurred based on the actual level of activity and the standard variable overhead cost that should have been incurred based on the standard level of activity. In this case, the standard variable overhead cost based on the actual machine hours worked was $48,000 while the standard variable overhead cost based on the standard machine hours allowed for output attained was also $48,000. Therefore, the variable-overhead efficiency variance is $0.