Question

Variable Overhead Variances
Smith Tax Company considers 6,000 direct labor hours or 300 tax returns its normal monthly capacity. Its standard variable overhead rate is $50 per direct labor hour. During the current month, $250,400 of variable overhead cost was incurred in working 5,500 direct labor hours to prepare 270 tax returns. Determine the following variances, and indicate whether each is favorable or unfavorable:

Determine the following variances:

Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable.

Variable Overhead Variances
Actual cost:
Split cost:
Standard cost:
a. Variable overhead spending		FU
b. Variable overhead efficiency		FU

Answer 1

Variable Overhead Variances
Actual cost:	250400
Split cost:	275000
Standard cost:	270000
a. Variable overhead spending	24600	F
b. Variable overhead efficiency	5000	U

Split cost = (Actual hours x Standard rate) = (5500 x $50) = $275000

Standard cost = (Standard hours x Standard rate) = (6000 x 270/300) x $50 = 5400 x $50 = $270000