Hudson Company\'s variable overhead is applied on the basis of direct labor hour

Question

Hudson Company's variable overhead is applied on the basis of direct labor hours. The standard cost card specifies 3 direct labor hours per unit of its product. The standard variable overhead rate is $5 per direct labor hour. Last quarter, Hudson actually produced 10,000 units of product. The company's accounting records show its variable overhead efficiency variance was $5,000 Unfavorable and variable overhead rate variance was $12,000 Favorable. What was Hudson's actual variable overhead cost last quarter?

$143,000 $157,000 $167,000 $133,000

Explanation / Answer

Actual variable overhead cost: $143,000

SH = 10000 units x 3 = 30000 direct labor hours

SR = $5

Total variable overhead variance = Actual variable overhead cost - Standard variable overhead cost = (AH X AR) - (SH X SR) = -7000

(AH X AR) - (30000 X $5) = -7000

(AH X AR) = -7000 + 150000 = $143000

Variable overhead rate variance 12000 F Variable overhead efficiency variance 5000 U Total variable overhead variance 7000 F

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