Puvo, 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:

Puvo, 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:

 

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

• The company produced 3,900 units during the month.
• A total of 20,900 pounds of material were purchased at a cost of $15,080.
• There was no beginning inventory of materials on hand to start the month; at the end of the month, 5,120 pounds of material remained in the warehouse.
• During March, 1,240 direct labor-hours were worked at a rate of $45.50 per hour.
• Variable manufacturing overhead costs during March totaled $15,561.

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

The variable overhead rate variance for March is:

Multiple Choice

• $3,697 U
• $3,161 F
• $3,161 U

  Correct
• $3,697 F

Explanation

AH × AR = $15,561

Variable overhead rate variance = (AH × AR) − (AH × SR)

= ($15,561) − (1,240 hours × $10.00 per hour)

= $15,561− $12,400

= $3,161 U

Thanks