Variable Overhead Rate Variance Accounting Question Need Help

Question

Thomas Corporation uses a standard costing system in which variable manufacturing overhead is assigned to production on the basis of number of machine hours. The following data pertain to one month's operations :

Variable Manufacturing Overhead Cost Incurred : $70,000

Variable Overhead Spending Variance : $4,550 Favorable

Standard Machine Hours allowed for actual production : 3,550

Actual Machine Hours Incurred : 4,000

 

Question : The variable overhead rate variance is :

A) 3,746 Unfavorable B) 3,746 Favorable C) 14,000 Unfavorable D) 14,000 Favorable E) Undeterminable

 

Answer was D) but I need help with steps as to how.

Answer 1

The unusual part of this problem is the favorable $4,550 overhead spending variance, which was not included in the expected expenses.

 

thus Expected expenses = ($70,000 + 4,550) ÷ 3,550hrs = $21/hr

 

so, expected expense = $21/h x 4,000hr = $84,000

 

Variance = Budgeted (expected) - Actual = 84,000 - 70,000 = $14,000, which is a favorable variance because Actual expenses were less than expected expenses.