Mike contracted with Kram Company, Mike's controlled corporation. Mike was a medical doctor and the contract provided that he wo
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a. The budgeted variable overhead is $468,750.
b. The variable overhead spending variance is $38,100 Favorable
c. The variable overhead efficiency variance is $30,000 Favorable
<h3>What is variable overhead?</h3>Variable overhead is a cost of running a business that varies with operational activity. Variable overheads rise and fall in lockstep with production output. Overheads, such as administrative overhead, are often a set cost.
The variable manufacturing overhead controllable variance reflects how effectively the company stuck to its budget. The difference between the planned fixed overhead at normal capacity and the standard fixed overhead for the actual units produced is the fixed factory overhead volume variance.
a. The budgeted variable overhead for 2017 = Budgeted hours * Variable overhead rate per hour
= (25000*0.75)*$25 = $468,750
b. Variable overhead spending variance = (SR - AR) * AH = ($25 - $23) * 19050 = $38,100 Favorable
c. Variable overhead efficiency variance = (SH - AH) * SR = (27000*0.75 - 19050) * $25 = $30,000 Favorable
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