Question

Theory Enterprises 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 for Theory 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

See below

Step-by-step explanation:

a. Variable overhead spending variance

= AH × ( AR - SR)

Where

AH = Actual Hours worked = 24,000

AR = Actual variable overhead rate = $50,000

SR = Standard variable overhead rate = $48,000

Therefore,

Variable overhead spending variance

= 24,000 × ($50,000 - $48,000)

= $48,000