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Freytag Corporation's variable overhead is applied on the basis of direct labor-hours. The company has established the following variable overhead standards for product N06C: Standard direct labor-hours 4.6 hours per unit of N06C Standard variable overhead rate $ 4.60 per hour The following data pertain to the most recent month's operations during which 2,100 units of product N06C were made: Actual direct labor-hours worked 9,400 Actual variable overhead incurred $ 44,940 Required: a. What was the variable overhead rate variance for the month

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Solution

Given :

Standard direct labor hours = 4.6 hours per unit

Standard variable overhead rate = $ 4.60 per hour

Actual direct labor hours worked = 9400

Actual variable overhead incurred = $ 44,940

Number of units of N06C = 2100 units

Therefore, output absorbed, V.OH = SHAO x budget OH/hr

                                                    = (2100 units x 4.6 per unit) x $ 4.60 per hour

                                                    = $ 44,436

The Input Absorbed V.OH = actual hours x budgeted OH/hour

                                            = 9400 x $ 4.60 per hour

                                            = $ 43,240

Therefore, the variable overhead rate variance is = $ 43,240 - $ 44,436

                                                                                  = $ 1196 (U)

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