Question

Venus company applies overhead based on direct labor hours. the variable overhead standard is 10 hours at $3.50 per hour. during october, venus company spent $157,600 for variable overhead. 47,440 labor hours were used to produce 4,800 units. what is the variable overhead rate variance?

Answer 1

In order to compute the variable overhead rate variance, you need to compare the actual overhead paid and the budgeted overhead. In this problem, the actual variable overhead paid is $157,600 and to get the budgeted variable overhead, you need to multiply the standard rate with the actual labor hours worked (47,440 labor hours x $3.50) giving you the result of $166,040. Comparing the actual variable overhead and the budgeted variable overhead, you can see that there will be $8,440 favorable variance. This would clearly result to an favorable variance because the company have actually paid lesser than the budgeted variable overhead.