Question

Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:

	Standard Quantity			Standard Price or Rate			Standard Cost
Direct materials		6.20	pounds	$	1.00	per pound	$	6.20
Direct labor		0.50	hours	$	37.50	per hour	$	18.75
Variable manufacturing overhead		0.50	hours	$	8.90	per hour	$	4.45

During March, the following activity was recorded by the company:

• The company produced 2,800 units during the month.
• A total of 19,800 pounds of material were purchased at a cost of $13,980.
• There was no beginning inventory of materials on hand to start the month; at the end of the month, 4,020 pounds of material remained in the warehouse.
• During March, 1,130 direct labor-hours were worked at a rate of $34.50 per hour.
• Variable manufacturing overhead costs during March totaled $14,461.

The direct materials purchases variance is computed when the materials are purchased.

The variable overhead rate variance for March is:

Answer 1

Solution

Variable Overhead Rate Variance

$             4,404.00

Unfavourable-U

Working

Actual DATA for		2800	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Variable Overhead	1130	$         12.80	$          14,461.00

.

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    8.90	-	$                      12.80	)	x	1130
	$         (4,404.00)
	Variance		$                4,404.00			Unfavourable-U