Kris Company calculates its predetermined rates using practical volume, which is

Question

Kris Company calculates its predetermined rates using practical volume, which is 325,000 units. The standard cost system allows 3 direct labor hours per unit produced Overhead is applied using direct labor hours. The total budgeted overhead is 94260,000, of which $994,000 s fived overhead. The actual results for the year are as follows: Units produced Direct labor: Variable overhead Fixed overhead: 318,000 965,000 hours $12.00/hour $3,302,000 $998,000 Calculate the variable overhead spending variance. Oa. $69,250F b. $40,000 F C. $69,250 U d$24,000 U e. None of these choices are correct.

Explanation / Answer

C.$69,250 U.

first let us calculate the standard variable overhead rate per direct labour hour.

=>budgeted total variable overhead = total over head - fixed overhead

=>$4,260,000 - $994,000

=>$3,266,000.

budgeted direct labour hours = 325,000 units * 3 hours =>975,000.

variable overhead rate = $3,266,000 / 975,000 =>$3.35....(rounded to two decimals).

now,

variable overhead spending variance.

=> [ actual hours * actual variable overhead rate] - [actual hours * standard variable overhead rate]

here,

actual hours * actual variable overhead rate = actual variable overhead incurred =>$3,302,000.

actual hours * standard variable overhead rate = 965,000 * $3.35 =>$3,232,750.

variable overhead spending variance= $3,302,000 - $3,232,750 = $69,250..(U).

It is unfavourable since the actual variable overhead is greater than budgeted variable overhead.

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.