Choice "A" is correct. The company's variable overhead (VOH) spending variance is $50 favorable. The spending variance is equal to the difference between the actual amount spent and the standard rate times the actual cost driver. The fact pattern provides all the data required to compute the VOH spending variance as follows:
Actual
| | Budgeted based on actual
|
|---|
Actual process hours | 25 | | Actual process hours | 25 |
Actual VOH rate | × $8 | | Standard VOH rate | × $10 |
Total | $200 | | Total | $250 |
The actual amount charged to the overhead account ($200) is less than the amount applied ($250) so the $50 variance is favorable. Overhead variances represent the analysis of the balance in the overhead account after application of overhead. Overapplied (more credit) is favorable because this means that actual is less than applied. Underapplied (more debit) is unfavorable because this means that actual is more than applied.Choice "b" is incorrect. The proposed solution of $50 unfavorable misinterprets the character of the variance. Amounts applied are greater than actual amounts incurred so the variance is favorable.
Choice "c" is incorrect. Although the variance is favorable, the proposed solution uses the standard cost driver rather than the actual. The amount charged to the overhead account (debited) is based on actual. Choice "d" is incorrect. The proposed solution uses the standard cost driver rather than the actual. The amount charged to the overhead account (debited) is based on actual. In addition, the solution misinterprets the relationship as unfavorable.
