Question

Puvo, Incorporated, manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:
Standard Quantity Standard Price or Rate Standard Cost
Direct materials 7.40 pounds $ 1.20 per pound $ 8.88
Direct labor 0.40 hours $ 49.50 per hour $ 19.80
Variable manufacturing overhead 0.40 hours $ 10.10 per hour $ 4.04

During March, the following activity was recorded by the company:



The company produced 4,000 units during the month.
A total of 21,000 pounds of material were purchased at a cost of $15,180.
There was no beginning inventory of materials on hand to start the month; at the end of the month, 5,220 pounds of material remained in the warehouse.
During March, 1,250 direct labor-hours were worked at a rate of $46.50 per hour.
Variable manufacturing overhead costs during March totaled $15,661.


The direct materials purchases variance is computed when the materials are purchased.



The variable overhead rate variance for March is:

Answer 1

The variable overhead rate variance for March for Puvo Incorporated is $3,036 Unfavorable.

What is the variable overhead rate variance?

The variable overhead rate variance calculates the difference between the actual variable overhead incurred and the standard variable overhead.

The standard variable overhead is the actual hours worked multiplied by the standard variable overhead rate.

Data and Calculations:

                         Standard Quantity    Standard Price or Rate Standard Cost

Direct materials      7.40 pounds         $ 1.20 per pound           $ 8.88

Direct labor               0.40 hours          $ 49.50 per hour         $ 19.80

Variable manufacturing

overhead                 0.40 hours            $ 10.10 per hour          $ 4.04

Actual production = 4,000 units

Actual direct labor-hours = 1,250 DLHs

Actual variable overhead costs = $15,661

Variable overhead rate variance = actual variable manufacturing overhead - actual hours worked x standard variable overhead rate

= $15,661 - (1,250 x $10.10)

= $3,036 Unfavorable

Thus, the variable overhead rate variance for March for Puvo Incorporated is $3,036 Unfavorable.

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