The variable portion of Murray Company’s flexible budget for manufacturing overhead is given below:

The budgeted activity for the period had been 12,000 machine-hours.

Required
1. Prepare a variable overhead performance report for the period. Indicate whether variances are favourable (F) or unfavourable (U). Show only a spending variance on your report.
2. Discuss the significance of the variances. Might some variances be the result of others? Explain.

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Variable overhead costs Supplies Maintenance Utilities Rework time Total variable overhead cost Supplies Maintenance Cost formula (per machine-hour) Utilities Rework time £0.20 0.80 0.10 0.40 £1.50 10,000 £2,000 8,000 1,000 4,000 £15,000 Machine-hours 12,000 £2,400 8,000 1,100 5,300 £2,400 9,600 1,200 4,800 £18,000 During a recent period, the company recorded 11,500 machine-hours of activity. The variable overhead costs incurred were: 14,000 £2,800 11,200 1,400 5,600 £21,000