Question

Stopyra Incorporated makes a single product—a cooling coil used in commercial refrigerators. The company has a standard cost system in which it applies overhead to this product based on the standard labor-hours allowed for the actual output of the period. Data concerning the most recent year appear below:
Budgeted variable manufacturing overhead $ 28,200
Budgeted fixed manufacturing overhead $ 89,280
Budgeted hours 12,000 labor-hours
Actual production (a) 16,000 units
Standard hours per unit (b) 0.60 labor-hours
Standard hours allowed for the actual production (a) × (b) 9,600 labor-hours
Actual variable manufacturing overhead $ 26,967
Actual fixed manufacturing overhead $ 74,280
Actual hours 8,900 labor-hours

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The variable overhead rate variance is:
$6,528 U

$6,528 F

$6,052 U

$6,052 F

Answer 1

The variable overhead rate variance is: c. $6,052 U.

Variable overhead rate variance

First step is to calculate variable component of the predetermined overhead rate using this formula

Variable component of the predetermined overhead rate= Budgeted variable manufacturing overhead/Budgeted hours

Let plug in the formula

Variable component of the predetermined overhead rate=$ 28,200/12,000 labor-hours

Variable component of the predetermined overhead rate=$2.35 per labor-hour

Second step is to calculate  variable overhead rate variance using this formula

Variable overhead rate variance=(AH×AR)-(AH×SR)

Let plug in the formula

Variable overhead rate variance= $ 26,967- ( 8,900 labor-hours×$2.35 per labor-hour)

Variable overhead rate variance= $ 26,967- $20,915

Variable overhead rate variance= $6,052 U (Unfavorable)

Therefore the variable overhead rate variance is: c. $6,052 U.

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