Shawl Corporation\'s variable manufacturing overhead is applied on the basis of

Question

Shawl Corporation's variable manufacturing overhead is applied on the basis of direct labor-hours. The standard cost card for product F02E specifies 5.5 direct labor-hours per unit of F02E. The standard variable manufacturing overhead rate is $6.80 per direct labor-hour. During the most recent month, 1,560 units of product F02E were made and 8,700 direct labor-hours were worked.

The actual variable manufacturing overhead incurred was $52,635

Required:

a. What was the variable overhead spending variance for the month?

b. What was the variable overhead efficiency variance for the month?

Explanation / Answer

a. Variable overhead spending variance = (AH × AR) – (AH × SR) = $52,635 – (8,700 × $6.80) = $6,525 F

b. Variable overhead efficiency variance = SR(AH – SH*) = $6.80(8,700 – 8,580) = $816 U

*SH = Standard hours per unit × Actual output= 5.5 × 1,560 = 8,580

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