The Montgomery Comoration has a standard costing system in which variable manofa

Question

The Montgomery Comoration has a standard costing system in which variable manofacturing overhead is asigned to production on the basis of standard N of standard machine-hours. The following data are available for September 1,500 hours Standard machine-hours allowed for September production: $22,620 Actual variable manufacturing overhead cost incurred: Variable overhead rate variance: $3,420 Unfavorable $4,620 Unfavorable Total variable overhead spending variance: 12 Actual machine-hours worked during September is: A. B. C. D. 1,500 hours 1,600 hours 1,700 hours 1,885 hours E. None of the above

Explanation / Answer

Solution:

Variable Overhead Rate Variance = (Actual Machine Hours x Standard Rate) – (Actual Machine Hours x Actual Rate)

Here, Actual Machine Hours x Actual Rate is given $22,620 (i.e. total actual variable overhead incurred)

Variable Overhead Rate Variance is $3,420 Unfavorable, it means actual variable overhead incurred is higher than anticipated.

Actual Machine Hours x Standard Rate = Actual Variable Overheads Incurred - $3,420

= $22,620 - $3,420

= $19,200

Actual Machine Hours x Standard Rate = $19,200 ----------- Equation (i)

Total Variable Overhead Spending Variance = (Standard Hours x Standard Rate) – (Actual Hours x Actual Rate)

Total variable overhead spending variance is Unfavorable $4,620, it means standard variable overhead is less than actual overheads incurred.

i.e.

-$4,620 = Standard Hours x Standard Rate - $22,620

Standard Hour 1,500 Hours x Standard Rate = $18,000

Standard Rate = $18,000 / 1500 = $12 per hour

Putting the value of Standard Rate into equation (i), we get

Actual Machine hours x $12 = $19,200

Actual Machine Hours = $19,200 / 12 = 1600 Hours

Hence, the correct option is B. 1,600 Hours

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