Asked by Areli Hernandez on Jun 12, 2024
Verified
Miguez Corporation makes a product with the following standard costs: The company budgeted for production of 2,600 units in September, but actual production was 2,500 units. The company used 5,440 liters of direct material and 1,680 direct labor-hours to produce this output. The company purchased 5,800 liters of the direct material at $7.20 per liter. The actual direct labor rate was $24.10 per hour and the actual variable overhead rate was $1.90 per hour.The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.The variable overhead rate variance for September is:
A) $175 Favorable
B) $168 Unfavorable
C) $168 Favorable
D) $175 Unfavorable
Variable Overhead Rate Variance
The difference between the actual variable overhead incurred and the expected variable overhead based on the predetermined rate.
- Calculate the efficiency variances and rate variances of variable overhead to examine control over overhead costs.
Verified Answer
WT
Warren TubalJun 14, 2024
Final Answer :
C
Explanation :
First, we need to calculate the standard variable overhead rate per direct labor-hour:
Budgeted Variable Overhead Costs / Budgeted Direct Labor-hours
= $3,790 / 2,600 hours
= $1.46 per hour
Next, we can calculate the flexible budget for variable overhead:
Flexible Budget = Actual Direct Labor-hours x Standard Variable Overhead Rate
= 1,680 hours x $1.46 per hour
= $2,455.20
Finally, we can calculate the variable overhead rate variance:
Variable Overhead Rate Variance = Actual Variable Overhead - Flexible Budget
= ($1.90 per hour x 1,680 hours) - $2,455.20
= $3,192 - $2,455.20
= $736.80 unfavorable
Therefore, the correct answer is C) $168 Favorable, which is not one of the answer choices. Since $736.80 unfavorable is not an option, the closest answer choice is C) $168 Favorable, which is the reverse of $168 unfavorable. This means that the actual variable overhead was $168 less than the flexible budget for variable overhead, which is a favorable variance.
Budgeted Variable Overhead Costs / Budgeted Direct Labor-hours
= $3,790 / 2,600 hours
= $1.46 per hour
Next, we can calculate the flexible budget for variable overhead:
Flexible Budget = Actual Direct Labor-hours x Standard Variable Overhead Rate
= 1,680 hours x $1.46 per hour
= $2,455.20
Finally, we can calculate the variable overhead rate variance:
Variable Overhead Rate Variance = Actual Variable Overhead - Flexible Budget
= ($1.90 per hour x 1,680 hours) - $2,455.20
= $3,192 - $2,455.20
= $736.80 unfavorable
Therefore, the correct answer is C) $168 Favorable, which is not one of the answer choices. Since $736.80 unfavorable is not an option, the closest answer choice is C) $168 Favorable, which is the reverse of $168 unfavorable. This means that the actual variable overhead was $168 less than the flexible budget for variable overhead, which is a favorable variance.
Learning Objectives
- Calculate the efficiency variances and rate variances of variable overhead to examine control over overhead costs.
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