Question

HSS Company provides security services to senior executives of prominent corporations when they travel outside the United States. HSS applies both fixed and variable overhead using direct labor hours. The annual budget for one if its customers is as follows: Budgeted hours 800 hours Direct labor $50.00 per hr. Variable overhead $30.00per hr. Fixed overhead $15.00 per hr. During the year, HSS had the following activity related to this customer: Actual hours were 850 at a total cost of $44,200. Actual fixed overhead was $12,750. Actual variable overhead was $22,950. What is the Variable Overhead Flexible Budget Variance?

a. U $2,550
b. U $1,050
c. F $2,550
d. F $1,050

Answer 1

Variable overhead variance = $2,550 favorable

Step-by-step explanation:

Flexible budget is that which is that which recognizes the cost behavior and is used for control purpose. It is prepared based on the actual level of activity achieved.

The variable overhead rate variance is the difference between the actual variable overhead cost and the actual hours multiplied by the standard variable overhead rate.

Actual hours of labour should have cost

($30× 850) 25500

but did cost 22,950

Variable overhead variance 2,550 favorable

Variable overhead rate variance = $2,550 favorable

Variable overhead deficiency variance