Question

Abbott has a standard variable overhead rate of $4.50 per machine hour, and each unit produced has a standard time allowed of three hours. The company's static budget was based on 46,000 units. Actual results for the year follow.

Actual units produced: 42,000
Actual machine hours worked: 120,000
Actual variable overhead incurred: $520,000
Abbott's variable-overhead spending variance is:
A. $20,000 favorable.
B. $20,000 unfavorable.
C. $27,000 favorable.
D. $27,000 unfavorable.
E. not listed above.

Answer 1

Abbott's variable-overhead spending variance is $47,000 favorable, which means the actual overhead costs were less than expected for the actual level of activity. The provided options do not include the correct variance amount.

Step-by-step explanation:

The variable-overhead spending variance is the difference between the actual cost incurred for variable overhead and the expected cost at the actual level of activity.

Abbott's standard variable overhead rate is $4.50 per machine hour, and the standard time allowed per unit is three hours. With actual production at 42,000 units, the standard machine hours are 42,000 units × 3 hours/unit = 126,000 machine hours.

The expected variable overhead cost at the actual level of activity would be 126,000 hours × $4.50/hour = $567,000. However, the actual variable overhead incurred is $520,000.

Therefore, the variable-overhead spending variance is $567,000 (expected) - $520,000 (actual) = $47,000 favorable, which is not listed among the options provided.