6 TB MC Qu. 10-195 Irving Corporation makes a product with.. Irving Corporation

Question

6 TB MC Qu. 10-195 Irving Corporation makes a product with.. Irving Corporation makes a product with the following standards for direct labor and variable overhead Standard Cost Per Unit $4.40 $1.16 Standard Quantity or Standard Price or 10 polnts Rate Direct labor Variable overhead Hours 0.20 hours 0.20 hours $22.00 per hour 5.80 per hour References In November the company's budgeted production was 6,100 units, but the actual production was 5,900 units. The company used 1,510 direct labor-hours to produce this output. The actual variable overhead cost was $8,154. The company applies variable overhead on the basis of direct labor-hours The variable overhead rate variance for November is Multiple Choice $604 F $472 U $604 U $472 F

Explanation / Answer

The following assumptions are taken as per conditions mentioned in the problem

·         The variable overhead is calculated on the basis of number of direct labor hours used in this case 1510 hours

·         The standard rate of variable overhead is $5.80 per hour

·         The actual variable overhead cost is $8,154

We will calculate the budgeted variable overhead amount as given below

Budgeted variable overhead amount = Number of direct labor hours x standard price per hour for variable overhead rate

= 1510 x $5.80

= $8,758

The variable overhead variance calculation is as below

Variable overhead variance = budgeted cost of variable overhead – actual expenditure of variable overhead

Variable overhead variance = $8,758 - $8,154

= $604 (F)

As the actual cost is less than budgeted cost therefore it is favorable variance by $604(f)

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