Question

Absolute Systems allocates manufacturing overhead based on machine hours. Each connector should require 10 machine hours. According to the static budget, absolute expected to incur the following:

1000 machine hours per month (100 connectors *10 machine hours per connector)

$8,500 in variable manufacturing overhead costs

$8115 in fixed manufacturing overhead costs

During August, Absolute actually used 600 machine hours to make 80 connectors and spent $5700 in variable manufacturing costs and $9600 in fixed manufacturing overhead costs. Calculate the variable overhead spending variance for Absolute.

a. $600 U

b. $1,100 F

c. $1,700 F

d. $2,300 F

Answer 1

Answer:

Option (A) is correct.

Explanation:

Standard variable overhead rate:

= variable manufacturing overhead costs ÷ machine hours per month

= $8,500 ÷ 1,000

= $8.5

Actual variable overhead rate:

= Spent in variable manufacturing costs ÷ machine hours used to make 80 connectors

= 5,700 ÷ 600

= $9.5

Variable overhead spending variance:

= (Standard variable overhead rate - Actual variable overhead rate) × Actual machine hour

= ($8.5 - $9.5) × 600

= -$1 × 600

= $600 Unfavorable