Question

Doogan Corporation makes a product with the following standard costs: 

	Standard Quantity or Hours	Standard Price or Rate
Direct materials	8.7 grams	$3.30 per gram
Direct labor	0.5 hours	$33.00 per hour
Variable overhead	0.5 hours	$8.30 per hour

The company produced 6,500 units in January using 40,610 grams of direct material and 2,510 direct labor-hours. During the month, the company purchased 45,700 grams of the direct material at $3.00 per gram. The actual direct labor rate was $32.30 per hour and the actual variable overhead rate was $8.10 per hour. 

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. 

The variable overhead rate variance for January is:

Answer 1

Variable overhead rate variance = (Standard rate-actual rate)actual hours

= (8.30-8.10)*2510

Variable overhead rate variance = 502 Favorable