What is the variable overhead spending variance using the folling information?

Question

Standard variable overhead rate $2 per machine hour

Standard fixed overhead rate $1 per machine hour

Actual variable overhead costs $390,500

Actual fixed overhead costs $175,000

Budgeted fixed overhead costs $190,000

Standard machine hours per unit produced 10

Good units produced 18,000

Actual machine hours 200,000

Answers to choose from:

a. $9,500 (F)

b. $9,500 (U)

c. $29,500 (F)

d. $39,500 (F)

Answer 1

AH = Actual hours, AR = Actual rate, SR = Standard rate

Variable overhead spending variance = AH * (AR - SR)

AH = 200,000 machine hours. At the standard variable overhead rate of $2 per machine hour, this would result in variable overhead cost of $400,000. But actual variable overhead costs were $390,500, so the variable overhead spending variance is going to be $9,500 favorable.

AR = $390,500 / 200,000 = $ 1.9525

Variable overhead spending variance = AH * (AR - SR)

= 200,000 * ( $1.9525 - $2.00 ) = 200,000 * ( - $0.0475 )

= - $ 9,500.

That is, $9,500 (F).