During the year, Octagon produced 8,000 units, used 24,000 direct labor hours, and incurred variable overhead of $120,000. Budgeted variable overhead for the year was $90,000. The hours allowed per unit are 2. The standard variable overhead rate is $3.00 per direct labor hour. The variable overhead spending variance is:

Question

Joslyn Miles

Business

28 October, 12:26

During the year, Octagon produced 8,000 units, used 24,000 direct labor hours, and incurred variable overhead of $120,000. Budgeted variable overhead for the year was $90,000. The hours allowed per unit are 2. The standard variable overhead rate is $3.00 per direct labor hour. The variable overhead spending variance is:

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Eduardo Carr · Answer 1

Manufacturing overhead rate (spending) variance = $24,000 favorable

Explanation:

Giving the following information:

Actual direct labor hours = 24,000

Octagon produced 8,000 units and incurred a variable overhead of $120,000.

The hours allowed per unit are 2. The standard variable overhead rate is $3.00 per direct labor hour.

To calculate the variable overhead spending variance, we need to use the following formula:

Manufacturing overhead rate (spending) variance = (standard rate - actual rate) * actual quantity

Actual rate = 120,000/24,000 = 5

Manufacturing overhead rate variance = (6 - 5) * 24,000

Manufacturing overhead rate variance = $24,000 favorable