Question

Sholette Manufacturing Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs) at $5.00 per MH. During the month, the actual total variable manufacturing overhead was $32,200 and the actual level of activity for the period was 7,000 MHs. What was the variable overhead rate variance for the month?

Answer 1

Variable overhead rate variance = $2,800 Favorable

Step-by-step explanation:

Standard Overhead Rate per machine hour = $5.00

Actual Overhead = $32,200

Actual Hours = 7,000 machine hours

Actual Rate per machine hour = $32,200/7,000 = $4.6 per hour

Variable Overhead Rate Variance = (Standard Rate - Actual Rate)
`*` Actual Hours

Putting values in above equation we have,

($5.00 - $4.60)
`*` 7,000 = $2,800

Since value is positive as actual rate is less than budgeted rate, the variable overhead variance is favorable.