Question

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 5.5 hours per unit of N06C Standard variable overhead rate $ 4.10 per hour The following data pertain to the most recent month's operations during which 1,600 units of product N06C were made: Actual direct labor-hours worked 8,700 Actual variable overhead incurred $ 36,540 Required: a. What was the variable overhead rate variance for the month? b. What was the variable overhead efficiency variance for the month?

Answer 1

Answer:

a. -$783 Unfavorable

b. 550 Favorable

Explanation:

a. The computation of Variable Overhead Rate Variance is shown below:-

Variable Overhead Rate Variance = Actual hours × (Standard Variable Overhead rate per hour - Actual Variable Overhead rate per hour)

= 8,700 × ($4.10 - ($36,540 ÷ 8,700)

=  8,700 × ($4.10 - $4.19)

= 8,700 × -$0.09

= -$783 Unfavorable

b. The computation of Variable Overhead Efficiency Variance is shown below:-

Variable Overhead Efficiency Variance = Standard Variable Overhead Rate per Hour ×  (Standard Hours for Actual Production - Actual Hours)

= 5.5 × ((5.5 × 1,600) - 8,700)

= 5.5 × (8,800 - 8,700)

= 5.5 × 100

= 550 Favorable