Acme Company\'s production budget for August is 18.800 units and includes the fo

Question

Acme Company's production budget for August is 18.800 units and includes the following component unit costs: direct materials. $8.0: direct labor. $11.0; variable overhead. $5.5. Budgeted fixed overhead is $45,000. Actual production in August was 19.416 units, actual unit component costs incurred during August include direct materials. $9.50: direct labor. $10.00: variable overhead. $6.50. Actual fixed overhead was $47,800. the standard variable overhead rate per unit consists of $5.5 per machine hour and each unit is allowed a standard of 1 hour of machine time. During August. $126,204 of actual variable overhead cost was incurred for 21,034 machine hours. Required: Calculate the variable overhead spending variance and the variable overhead efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Explanation / Answer

Answer: Variable overhead spending variance=(SR-AR)*AQ

=($5.5-$6.5)*19416=19416 U

Variable overhead efficiency variance=(SQ-AQ)*SR

=(18800-19416)*5.5

= 3388 U

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