Answer (B) is correct . The total overhead applied was $1,400,000 ($1,200,000 fixed plus $200,000 variable). Since actual overhead was $1,600,000, the total overhead variance was $200,000 unfavorable. The $200,000 total variance would be explained by three elements: ?the fixed overhead volume variance, the variable overhead efficiency variance, and the total spending variance. At $3 per hour, fixed overhead was applied on the basis of 400,000 hours, but since the budget called for 500,000 hours, there was an unfavorable volume variance of 100,000 hours at $3, or $300,000. The variable overhead efficiency variance is calculated by multiplying the excess hours of 30,000 (430,000 – 400,000) times the variable application rate of $.50, or $15,000 unfavorable. Therefore, when you combine the $300,000 unfavorable volume variance and the $15,000 unfavorable efficiency variance, you get $315,000 unfavorable. Since the total variance was only $200,000 unfavorable, the spending variance must be favorable in the amount of $115,000. Algebraically, this is solved as $300,000 U + 15,000 U – SV = 200,000 U. Thus SV = $115,000 F.
Answer (A) is incorrect because The total budget variance is $100,000.
Answer (C) is incorrect because The result of reversing the sign of the efficiency variance is $185,000.
Answer (D) is incorrect because The total overhead variance is $200,000.
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Harper’s total overhead spending variance for the month was