Question

Kris Company calculates its predetermined rates using practical volume, which is 325,000 units. The standard cost system allows 3 direct labor hours per unit produced. Overhead is applied using direct labor hours. The total budgeted overhead is $4,260,000, of which $994,000 is fixed overhead. The actual results for the year are as follows:

Units produced:	318,000
Direct labor:	965,000 hours @ $12.00/hour
Variable overhead:	$3,302,000
Fixed overhead:	$998,000

Calculate the variable overhead spending variance.

a.$69,250 F

b.$69,250 U

c.$24,000 U

d.$40,000 F

e.None of these choices are correct.

Answer 1

Standard direct labor hours = 325,000 units * 3 direct labor hours per unit = 975,000 direct labor hours

Variable overhead = Total overhead - Fixed overhead

= $4,260,000 - $994,000

= $3,266,000

Standard variable overhead rate per hour = $3,266,000 / 975,000

= $3.35

Variable overhead spending variance = Actual overhead - (Actual hours * Standard rate)

= $3,302,000 - (965,000 * $3.35)

= $69,250 Favorable

The answer is a.