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8 January, 12:14

Absolute Systems allocates manufacturing overhead based on machine hours. Each connector should require 10 machine hours. According to the static budget, absolute expected to incur the following:

1000 machine hours per month (100 connectors * 10 machine hours per connector)

$8,500 in variable manufacturing overhead costs

$8115 in fixed manufacturing overhead costs

During August, Absolute actually used 600 machine hours to make 80 connectors and spent $5700 in variable manufacturing costs and $9600 in fixed manufacturing overhead costs. Calculate the variable overhead spending variance for Absolute.

a. $600 U

b. $1,100 F

c. $1,700 F

d. $2,300 F

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Answers (1)
  1. 8 January, 12:39
    0
    Option (A) is correct.

    Explanation:

    Standard variable overhead rate:

    = variable manufacturing overhead costs : machine hours per month

    = $8,500 : 1,000

    = $8.5

    Actual variable overhead rate:

    = Spent in variable manufacturing costs : machine hours used to make 80 connectors

    = 5,700 : 600

    = $9.5

    Variable overhead spending variance:

    = (Standard variable overhead rate - Actual variable overhead rate) * Actual machine hour

    = ($8.5 - $9.5) * 600

    = - $1 * 600

    = $600 Unfavorable
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