7. Tech Company produces computer servers. Variable overhead is allocated to eac

Question

7. Tech Company produces computer servers. Variable overhead is allocated to each server based on a standard of $100 per machine hour and 3 machine hours per server. A total of 850 machine hours were used during the month of August to produce 300 servers. Variable overhead costs totaled $96,050 for the month. a) Calculate the variable overhead spending variance for the month of August. Clearly indicate if the variance is favorable or unfavorable. b) Calculate the variable overhead efficiency variance for the month of August. Clearly indicate if the variance is favorable or unfavorable.

Explanation / Answer

Variable overhead spending variance = (AH*AR)-(AH*SR)

= 96050-(850*100)

Variable overhead spending variance = 11050 Unfavorable

Variable overhead efficiency variance = (Standard hour-actual hour)Standard rate

= (300*3-850)*100

Variable overhead efficiency variance = 5000 Favorable

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