Levelor Company\'s flexible budget shows $10,810 of overhead at 75% of capacity,

Question

Levelor Company's flexible budget shows $10,810 of overhead at 75% of capacity, which was the operating level achieved during May. However, the company applied overhead to production during May at a rate of $2.10 per direct labor hour based on a budgeted operating level of 6,220 direct labor hours (90% of capacity). If overhead actually incurred was $11,293 during May, the controllable variance for the month was:

$483 unfavorable.

$2,252 favorable.

$2,252 unfavorable.

$1,769 favorable.

$483 favorable.

Explanation / Answer

Calculate the controllable variance for the month

Controllable variance = Actual oveheads incurred - (Applied rate * budgeted hours)

= 11293 - (2.1*6220)

=11293-13062

=1769 Favorable

Since actual cost incurred is less than that of the standard or budgeted variance , hence the variance is favorable

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