Question

A firm uses machine hours to allocate overhead cost. During the period, the budgeted variable overhead is rs. 10000 and the budgeted machine hours is 100 hours for a budgeted volume of 1000 units. The firm produced 1200 units consuming 150 hours and spent rs. 15000 towards variable overhead. What is the total variable overhead cost variance?

1) rs. 3000 favorable
2) rs. 5000 favorable
3) rs. 5000 adverse
4) rs. 3000 adverse

Answer 1

The total variable overhead cost variance is rs. 5000 adverse (3).

Step-by-step explanation:

The total variable overhead cost variance can be calculated by comparing the actual variable overhead cost with the budgeted variable overhead cost. In this case, the actual variable overhead cost is rs. 15000 and the budgeted variable overhead cost is rs. 10000. The total variable overhead cost variance is = Actual variable overhead cost - Budgeted variable overhead cost = rs. 15000 - rs. 10000 = rs. 5000. Therefore, the correct answer is option 3) rs. 5000 adverse.