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The variable overhead spending variance is the difference between the actual variable overhead cost per unit of the allocation base actually used (the actual overhead costs divided by the actual usage of the allocation base) and the standard variable overhead application rate, multiplied by the actual quantity used of the application base. (Actual Cost per Hour [MH or DLH] Actually Used ? Standard Application Rate) × Actual Quantity [MH or DLH] Used.) This variance is also the difference between the actual amount of variable overhead incurred and the standard amount of variable overhead allowed for the actual quantity of the variable overhead allocation base used for the output produced. To use the formula — (Actual Cost per Hour [MH or DLH] Actually Used ? Standard Application Rate) × Actual Quantity [MH or DLH] Used — we need to find the actual application rate and the standard application rate. The actual quantity of the application base (direct labor hours) used is given in the problem as 440,000. Actual Cost per Hour Actually Used: The actual variable overhead incurred was $352,000. The actual quantity of direct labor hours used was 440,000. Therefore, the actual cost per hour actually used was $352,000 ÷ 440,000 = $.80. Standard Application Rate: This one is a little more complicated. Total budgeted overhead is given in the problem as $900,000, but that includes both fixed and variable overhead. We need to figure out what the budgeted variable overhead was. We have enough information to figure out what budgeted fixed overhead was, so we can calculate budgeted fixed overhead and subtract it from budgeted total overhead to find budgeted variable overhead. The fixed overhead application rate is given in the problem as $3.00 per unit, and the budgeted production is given as 200,000 units. Therefore, total budgeted fixed overhead must have been $3.00 × 200,000 units, which is equal to $600,000. Since total budgeted overhead was $900,000 and total budgeted fixed overhead was $600,000, total budgeted variable overhead must have been $900,000 ? $600,000, or $300,000. Since production was budgeted to be 200,000 units, standard (budgeted) variable overhead per unit produced was $300,000 ÷ 200,000, which is $1.50 per unit. Overhead is applied on the basis of direct labor hours, and 2 direct labor hours are allowed for each unit produced. So the standard variable overhead rate per direct labor hour allowed for production is $1.50 ÷ 2, which is $.75. Actual quantity of application base used: This is given as 440,000 direct labor hours. The variable overhead spending variance is therefore: (.80 ? .75) × 440,000 = 22,000 Since overhead is a cost, a positive variance is an Unfavorable variance. We said that the variable overhead spending variance is also the difference between the actual amount of variable overhead incurred and the standard amount of variable overhead allowed for the actual quantity of the variable overhead allocation base used for the output produced. Actual variable overhead incurred is given in the problem as $352,000. The standard amount of variable overhead allowed for the actual quantity of the variable overhead allocation base used for the output produced is the standard variable overhead application rate of $.75 (calculated above) multiplied by the actual direct labor hours used, which is 440,000. The result, $330,000, is subtracted from $352,000 to calculate the variance: $22,000 Unfavorable.
This is not the correct answer. Please see the correct answer for a complete explanation. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.
This is not the correct answer. Please see the correct answer for a complete explanation. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created.The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.