Asked by Gabriel Matar on Apr 30, 2024
Verified
Valera Corporation makes a product with the following standards for labor and variable overhead: The company budgeted for production of 5,300 units in July, but actual production was 5,400 units. The company used 2,130 direct labor-hours to produce this output. The actual variable overhead rate was $6.10 per hour. The company applies variable overhead on the basis of direct labor-hours.The variable overhead efficiency variance for July is:
A) $183 Favorable
B) $180 Unfavorable
C) $180 Favorable
D) $183 Unfavorable
Variable Overhead Efficiency Variance
This variance measures the difference between the actual hours taken to produce a good and the standard hours expected, multiplied by the variable overhead rate per hour.
Variable Overhead
Costs that vary in direct proportion to changes in the operational activity of a business, such as utility bills or raw material costs.
Budgeted Production
represents the amount of production planned for a future period as part of the budgeting process.
- Apprehend the approach to quantifying variable overhead efficiency variances.
Verified Answer
Standard hours for actual output = Standard hours per unit x Actual output
= 2.9 DLHs per unit x 5,400 units
= 15,660 DLHs
Actual variable overhead = Actual hours x Actual variable overhead rate
= 2,130 DLHs x $6.10 per DLH
= $12,993
Standard variable overhead = Standard hours for actual output x Standard variable overhead rate
= 15,660 DLHs x $6.00 per DLH
= $93,960
Variable overhead efficiency variance = (15,660 DLHs - 2,130 DLHs) x $6.00 per DLH
= 13,530 DLHs x $6.00 per DLH
= $81,180 Favorable
Therefore, the correct answer is C, $180 Favorable.
Learning Objectives
- Apprehend the approach to quantifying variable overhead efficiency variances.
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