Ortman Corporation makes a product with the following standard costs: or Standar

Question

Ortman Corporation makes a product with the following standard costs: or Standard Price or Rate Direct materials Direct labor Variable overhead 6.9 liters 1.3 hours 13 hours $14.00 per liter $19.00 per hour $100 per hour The company reported the following results concerning this product in May Actual output Rew materiais used in production Actual direct labor-hours Purchases of raw materials Actual price of raw materials purchased Actuel direct lebor rate Actual variable overhead rate 1900 units 12,920 liters 2,390 hours 14,500 liters $710 per liter $18.20 per hour $0.50 per hour The company applies varable overheed on the basit of direct labor- hours. The direct materials purchases variance is computed when the materials are purchased The vartable overhead rate variance for May ? $1.198 F O $1198 U O s1195 F O $1195 U References

Explanation / Answer

Variable Overhead rate variance = (Standard variable overhead rate - Actual variable overhead rate) * Actual units of allocation base i.e.direct labour hours Standard variable overhead rate = $1 per hour Actual variable overhead rate = $0.50 per hour Actual direct labour hours = 2390 hours Variable Overhead rate variance = ($1 - $0.50) * 2390 hours = $1195 F

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