Question

Mosaic Company applies overhead using machine hours and reports the following information. Compute the total variable overhead cost variance and classify it as favorable or unfavorable.

Actual machine hours used 4,700 hours

Standard machine hours (for actual production) 5,000 hours

Actual variable overhead rate per hour \(4.15

Standard variable overhead rate per hour \)4.00

Short answer

The total variable overhead cost variance is $495 (Favorable).

Step-by-step solution

Meaning of Favorable Variance

A variance is considered favorable when the actual revenues exceed the budgeted revenues, or the actual costs are less than the budgeted costs. Variances are computed by taking the difference between the actual and budgeted outcomes.

Computation of total variable overhead cost variance

$$\begin{gathered} \mathbf{\text{Totalvariableoverheadvariance=}}\left(\text{Standardmachinehours×Standardvariableoverheadrate}\right) \\ \mathbf{\text{-}}\left(\text{Actualmachinehours×Actualvariableoverheadrate}\right) \\ \mathbf{\text{=}}\left(\text{5,000×\$4}\right)\mathbf{\text{-}}\left(\text{4700×\$4.15}\right) \\ \mathbf{\text{=\$20,000-\$19,505}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{\text{=\$495}}\left(\text{Favorable}\right) \end{gathered}$$