Choice "B" is correct. The balance in the overhead account is equal to the sum of the variances as follows (debit balances are unfavorable and credit balances are favorable):
Volume variance (given) | $(25,000) | Unfavorable |
Efficiency variance (given) | 30,000 | Favorable |
Spending variance (squeeze) | 5,000 | Favorable |
Account Balance (credit, given) | $10,000 | Favorable |
Choice "c" is incorrect. The spending variance is favorable since the overhead account is overapplied by $10,000 (a credit balance indicating a favorable variance) and the net volume and efficiency variances only account for a $5,000 of the favorable variance. The difference is the spending variance and it is favorable in order to fully account for the ending balance.Choice "a" is incorrect. The spending variance is favorable, but it represents the difference between the ending balance and the volume and efficiency variances previously accounted for, not the sum.Choice "d" is incorrect. The spending variance is favorable, not unfavorable and it represents the difference between the ending balance and the volume and efficiency variances previously accounted for, not the sum of the absolute amounts.
