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18 October, 01:23

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:

a. Variable overhead spending

b. Variable overhead efficiency

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Answers (1)
  1. 18 October, 04:50
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    a. $5,000 unfavorable

    b. $24,600 favorable

    Explanation:

    The computations are shown below:

    a. Variable overhead efficiency variance = Standard rate * (Standard hours - Actual hours)

    where,

    Standard variable overhead rate is $50

    Actual hours is 5,500 direct labor hours

    Standard hours is

    = 6,000 : 300 * 270 = 5,400 direct labor hours

    So, the Variable overhead efficiency variance is

    = $50 * (5,400 direct labor hours - 5,500 direct labor hours)

    = $50 * - 100 direct labor hours

    = $5,000 unfavorable

    b. And, variable overhead spending variance is

    = (Actual hours * Standard rate) - Actual cost

    = (5,500 hours * $50) - $250,400

    = $275,000 - $250,400

    = $24,600 favorable
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