Since total budgeted overhead was 900000 and total

Since total budgeted overhead was $900,000 and total budgeted fixed overhead was $600,000, total
budgeted variable overhead must have been $900,000 − $600,000, or $300,000. Since production

Hock 2020 Part 1
Section C - Performance Management.
Answers
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was budgeted to be 200,000 units, standard (budgeted) variable overhead per unit produced was
$300,000 ÷ 200,000, which is $1.50 per unit. Overhead is applied on the basis of direct labor hours,
and 2 direct labor hours are allowed for each unit produced. So the standard variable overhead rate
per direct labor hour allowed for production is $1.50 ÷ 2, which is $0.75.
Actual quantity of application base used: This is given as 440,000 direct labor hours.
The variable overhead spending variance is therefore:
(0.80 − 0.75) × 440,000 = 22,000
Since overhead is a cost, a positive variance is an Unfavorable variance.
We said that the variable overhead spending variance is also the difference between the actual
amount of variable overhead incurred and the standard amount of variable overhead allowed for the
actual quantity of the variable overhead allocation base used for the output produced. Actual
variable overhead incurred is given in the problem as $352,000. The standard amount of variable
overhead allowed for the actual quantity of the variable overhead allocation base used for the output
produced is the standard variable overhead application rate of $0.75 (calculated above) multiplied by
the actual direct labor hours used, which is 440,000. The result, $330,000, is subtracted from
$352,000 to calculate the variance: $22,000 Unfavorable.
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