Peterson, Inc. produced 40,000 bar stools during March. The following variable o

Question

Peterson, Inc. produced 40,000 bar stools during March. The following variable overhead data pertain to March: (Don’t forget to designate if the variance is favorable or unfavorable)

Actual        Budgeted
Production                                                     40,000 units    35,000 units
Total Machine-hours                                   13,000 hours     9,800 hours
Variable overhead cost per machine-hour             $11.15             $11.65

a) What is the actual variable overhead cost?
b) What is the flexible-budget amount?
c) What is the variable overhead spending variance?
d) What is the variable overhead efficiency variance?

Explanation / Answer

Peterson, Inc. a) What is the actual variable overhead cost? Actual variable overhead cost = 13,000 mh × $ 11.15 = $144,950 b) What is the flexible-budget amount? Flexible-budget amount = 9,800 mh × $11.65 = $114,170 c) What is the variable overhead spending variance? Variable overhead spending variance = ($11.15 $11.65) × 13,000 mh = $6500 Favorable d) What is the variable overhead efficiency variance? Variable overhead efficiency variance = [13,000 9,800] × $11.65 = $37,280 Unfavorable

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