Question

A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company bases its variable manufacturing overhead standards on direct labor-hours. Standard hours per unit of output 3.20 DLHs Standard variable overhead rate $ 10.55 per DLH The following data pertain to operations for the last month: Actual direct labor-hours 9,400 DLHs Actual total variable manufacturing overhead cost $ 95,780 Actual output 2,700 units What is the variable overhead efficiency variance for the month?

Answer 1

Answer:

 Variable overhead efficiency variance $ 8,018 Unfavorable

Explanation:

Variable overhead efficiency variance: Variable overhead efficiency variance aims to determine whether or not their exist savings or extra cost incurred on variable overhead as a result of workers being faster or slower that expected.  

Since the variable overhead is charged using labour hours, any amount by which the actual labour hours differ from the standard allowable hours would result in a variance  

                                                                                      Hours

2,700 units should have taken (2,700 × 3.20)           8640

but did take  (actual hours)                                        9,400

Efficiency variance in hours                                      760 unfavorable

standard variable overhead cost per hour           $10.55

Variable overhead efficiency variance                  $ 8,018  Unfavorable

 Variable overhead efficiency variance $ 8,018 Unfavorable