Question

Refer to the information from QS 21-18. Compute the variable overhead spending variance and the variable overhead efficiency variance and classify each as favorable or unfavorable.

Short answer

The variable overhead spending variance is unfavorable.

The variable overhead efficiency variance is favorable.

Step-by-step solution

Meaning of Overhead Variance

Overhead variance refers to the difference between the standard costs of allowed overhead and the actual applied overhead cost. The managers ascertain such variances to apply cost controlling measures for favorable outcomes.

Computation of variances

Computation of spending variance:

Particulars	Hours	Rate	Total ($)
Actual overhead cost	4,700	$4.15	$19,505
Budgeted overhead cost	4,700	$4	$18,800
Spending variance			$705 (Unfavorable)

Computation of efficiency variance:

Particulars	Hours	Rate	Total ($)
Budgeted overhead cost	4,700	$4	$18,800
Applied overhead	5,000	$4	$20,000
Efficiency variance			$1,200 (Favorable)