- What is the efficiency variance for the Assembly Department's variable overhead in June?
Answer: $1,250 unfavorable because actual machine hours exceeded standard hours allowed for actual production output
Variable overhead efficiency variance measures how well a company used its variable overhead resources compared to the standard allowed for actual production. When you see overhead variance questions, focus on comparing actual input usage to standard input allowed for the actual output achieved.
To calculate variable overhead efficiency variance, use the formula: (Actual Hours - Standard Hours for Actual Production) × Standard Variable Rate. Here, you have actual machine hours of 1,900, standard hours allowed for actual production of 1,850, and a variable rate of $25 per hour from the cost equation.
The calculation is: (1,900 - 1,850) × $25 = 50 hours × $25 = $1,250 unfavorable. The variance is unfavorable because the department used more machine hours (1,900) than the standard allowed for what they actually produced (1,850).
Choice A incorrectly calculates $2,500 and calls it favorable, missing that using more hours than standard is inefficient. Choice B gets the $1,250 amount right but incorrectly calls it favorable and compares actual hours to flexible budget hours rather than standard hours for actual production. Choice C incorrectly uses $2,500 and compares actual hours to the static budget, which isn't relevant for efficiency variance calculations.
Remember that efficiency variances always compare actual input usage to standard input allowed for actual output. If actual exceeds standard, you've been inefficient (unfavorable). The key is identifying the right comparison points and applying the correct rate.
- A manufacturing company has the following overhead cost equation: TotalOverhead=$40,000+$16×DirectLaborHours. During March, the company worked 3,500 actual direct labor hours to produce output that should have required 3,400 standard direct labor hours according to the predetermined standards. The static budget was based on 3,600 direct labor hours. If actual overhead costs were $98,500, what is the variable overhead spending variance?
Answer: $2,500 unfavorable because actual variable costs per hour exceeded the standard variable rate
Variable overhead spending variance measures whether you paid more or less per hour for variable overhead than your standard rate. When you see overhead cost equations with both fixed and variable components, focus on isolating the variable portion to calculate this variance.
To find the variable overhead spending variance, you need the actual variable overhead rate versus the standard rate, applied to actual hours worked. The standard variable rate is $16 per direct labor hour from the cost equation.
First, calculate the actual variable overhead rate. With actual total overhead of $98,500 and actual hours of 3,500, you get: Actual variable overhead = $98,500 - $40,000 (fixed portion) = $58,500. The actual variable rate is $58,500 ÷ 3,500 hours = $16.71 per hour.
The spending variance is: (Actual rate - Standard rate) × Actual hours = ($16.71 - $16.00) × 3,500 = $0.71 × 3,500 = $2,485, or approximately $2,500 unfavorable. Since the actual rate exceeded the standard rate, this is unfavorable.
Answer A incorrectly calculates $1,600, likely confusing this with efficiency variance calculations. Answer B shows the right amount but wrong direction – when actual costs exceed standard, the variance is unfavorable, not favorable. Answer D gets both the amount and direction wrong, possibly mixing up different variance components.
Remember: spending variances focus on rate differences, while efficiency variances focus on hour differences. Always multiply rate variances by actual hours worked, not standard or budgeted hours.
- A company's flexible budget formula for manufacturing overhead is Y=$60,000+$18X, where X represents direct labor hours. The static budget was based on 8,000 direct labor hours. During the period, actual direct labor hours were 7,500, actual production required 7,800 standard direct labor hours, and actual overhead costs were $198,000. What is the overhead spending variance?
Answer: $3,000 unfavorable because actual costs exceeded the flexible budget for actual hours by this amount
Spending variance compares actual costs to the flexible budget for actual hours worked. Flexible budget for actual hours = $60,000 + ($18 × 7,500) = $60,000 + $135,000 = $195,000. Spending variance = $198,000 - $195,000 = $3,000 unfavorable. The variance is unfavorable because actual costs exceeded what should have been spent for the actual hours worked.
- If the standard direct labor hours per unit is 5 hours, what is the volume variance for fixed overhead?
Answer: $4,000 unfavorable because actual production was below the static budget level by 100 units
Volume variance = (Static budget hours - Standard hours for actual production) × Fixed overhead rate per hour. Fixed overhead rate = $120,000 ÷ 15,000 hours = $8 per hour. Standard hours for actual production = 2,900 units × 5 hours = 14,500 hours. Volume variance = (15,000 - 14,500) × $8 = $4,000 unfavorable. The variance is unfavorable because actual production (2,900 units) was less than static budget production (3,000 units).
- What is the total flexible budget variance for overhead in April?
Answer: $5,500 unfavorable because actual costs exceeded the flexible budget amount for actual activity level
Flexible budget for actual machine hours = $80,000 + ($15 × 11,500) = $80,000 + $172,500 = $252,500. Total flexible budget variance = Actual costs - Flexible budget = $258,000 - $252,500 = $5,500 unfavorable. The variance is unfavorable because actual costs exceeded the flexible budget amount.
