This question requires total overhead spending variance to be calculated. Total overheads are sum of fixed and variable overheads.
Total overhead spending variance is calculated = (Actual total overhead - budgeted total overhead at actual activity level)
Budgeted total overhead at actual activity are calculated as = fixed overhead + variable overhead at actual activity level
Variable overheads are calculated = direct labour hours x rate = 430,000 x 0.5 = 215,000
Budgeted total overhead at actual activity = 1,500,000 + 215,000 = 1,715,000
Total overhead spending variance = 1,600,000 - 1,715,000 = (115,000) favorable (actual expenses are less than budgeted)
Correct answer is b
Please note that applied fixed overhead 1,200,000 are irrelevent for this question.
Hope its is clear for you now
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