Question

The following standards for variable overhead have been established for a company that makes only one product:

Standard hours per unit of output 5.18 hours
Standard variable overhead rate $24.08 per hour
The following data pertain to operations for the last month:

Actual hours 8,100 hours
Actual total variable overhead cost $124,990
Actual output 1,820 units
a. What is the variable overhead rate variance for the month?

Answer 1

The variable overhead rate variance is found by comparing the standard cost of variable overhead for the actual output and the actual variable overhead incurred, resulting in a favorable variance of $102,047.04, as less was spent than expected.

Step-by-step explanation:

To calculate the variable overhead rate variance, we need to compare the standard variable overhead rate with the actual overhead rate incurred.

First, multiply the standard hours allowed for the actual output by the standard rate: 1,820 units × 5.18 hours/unit × $24.08/hour = $227,037.04. This is the amount of variable overhead that should have been spent given the actual output.

Next, calculate the actual variable overhead rate: $124,990 / 8,100 hours = $15.43 per hour.

The variable overhead rate variance is then: $227,037.04 (standard) - $124,990 (actual) = $102,047.04 favorable. The variance is favorable because the actual cost incurred was less than what was expected based on the standards.