A manufacturing company accumulates variable overhead data: Actual $61,000; Budgeted variable overhead at actual hours used $64,000; Applied variable overhead $60,000. The variable overhead spending variance is:

A manufacturing company accumulates variable overhead data: Actual $61,000; Budgeted variable overhead at actual hours used $64,000; Applied variable overhead $60,000. The variable overhead spending variance is:

• A. $3,000 Favorable
• B. $3,000 Unfavorable
• C. $1,000 Favorable
• D. $3,000 Unfavorable

Answer: (A)

Variable overhead spending variance shows whether actual overhead cost for the actual level of activity is higher or lower than what the activity would cost at the standard rate. Here the actual variable overhead is 61,000 and the flexible budget amount for the actual hours worked (budgeted variable overhead at actual hours) is 64,000. The variance is 61,000 minus 64,000, which equals -3,000. A negative result means spending was below the budget for the actual activity, i.e., a favorable variance of 3,000. The applied overhead figure (60,000) isn’t used in this variance calculation; it relates to other overhead variances.

Variable overhead spending variance shows whether actual overhead cost for the actual level of activity is higher or lower than what the activity would cost at the standard rate. Here the actual variable overhead is 61,000 and the flexible budget amount for the actual hours worked (budgeted variable overhead at actual hours) is 64,000. The variance is 61,000 minus 64,000, which equals -3,000. A negative result means spending was below the budget for the actual activity, i.e., a favorable variance of 3,000. The applied overhead figure (60,000) isn’t used in this variance calculation; it relates to other overhead variances.