ABC Company's production budget for October is based on 500 units. Standard unit cost for variable overhead is $25 per unit ($5 per hour x 5 hours per unit). ABC's actual production in October = 525 units. The actual cost of variable overhead = $18,900 ($6 per hour x 6 hours per unit).Calculate the variable overhead spending variance for October:Variable overhead spending variance = $.Use F or U to identify the variance as Favorable or Unfavorable: .
Question
ABC Company's production budget for October is based on 500 units. Standard unit cost for variable overhead is 5 per hour x 5 hours per unit). ABC's actual production in October = 525 units. The actual cost of variable overhead = 6 per hour x 6 hours per unit).Calculate the variable overhead spending variance for October:Variable overhead spending variance = $.Use F or U to identify the variance as Favorable or Unfavorable: .
Solution
To calculate the variable overhead spending variance, we first need to determine the actual cost per unit and the standard cost per unit.
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Actual cost per unit: The actual cost of variable overhead is 18,900 / 525 = $36.
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Standard cost per unit: The standard unit cost for variable overhead is $25 per unit.
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The variable overhead spending variance is then calculated as the difference between the actual cost per unit and the standard cost per unit, multiplied by the actual number of units produced.
Variable overhead spending variance = (Actual cost per unit - Standard cost per unit) x Actual number of units = (25) x 525 = 5775
- If the actual cost is higher than the standard cost, the variance is unfavorable (U). If the actual cost is lower than the standard cost, the variance is favorable (F). In this case, because the actual cost per unit (25), the variance is Unfavorable (U).
So, the variable overhead spending variance for October is $5775 Unfavorable.
Similar Questions
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