Pardoe, Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:

  1. During March, the following activity was recorded by the company:

    • The company produced 3,000 units during the month.
    • A total of 8,000 pounds of material were purchased at a cost of $23,000.
    • There was no beginning inventory of materials on hand to start the month; at the end of the month, 2,000 pounds of material remained in the warehouse.
    • During March, 1,600 direct labor-hours were worked at a rate of $6.50 per hour.
    • Variable manufacturing overhead costs during March totaled $1,800.

    The direct materials purchases variance is computed when the materials are purchased.

The variable overhead rate variance for March is:

  • $200 F
  • $600 F
  • $600 U
  • $200 U

Answer:

AH × AR = $1,800
Variable overhead rate variance = (AH × AR) − (AH × SR)
= ($1,800) − (1,600 hours × $1.25 per hour)
= $1,800 − $2,000
= $200 F

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