Asked by Taylor Brazeau on May 20, 2024
Verified
Brummer Corporation makes a product whose variable overhead standards are based on direct labor-hours. The quantity standard is 0.20 hours per unit. The variable overhead rate standard is $8.90 per hour. In January the company produced 4,900 units using 1,010 direct labor-hours. The actual variable overhead rate was $8.80 per hour.The variable overhead efficiency variance for January is:
A) $267 Favorable
B) $264 Unfavorable
C) $267 Unfavorable
D) $264 Favorable
Variable Overhead Standards
The budgeted or standard costs associated with variable overheads, which are expected to change in proportion to different levels of production activity.
Direct Labor-hours
Represents the total hours of labor directly involved in manufacturing a product or delivering a service.
Variable Overhead Rate
The rate at which variable overhead costs are allocated to each unit of production, typically based on hours of labor or machine hours.
- Understand how to calculate variable overhead efficiency variances.
Verified Answer
Actual variable overhead costs = Actual hours worked x Actual variable overhead rate
Actual variable overhead costs = 1,010 x $8.80
Actual variable overhead costs = $8,888
Step 2: Calculate the flexible budget variable overhead costs based on the actual direct labor-hours
Flexible budget variable overhead costs = Standard variable overhead rate x Actual direct labor-hours
Flexible budget variable overhead costs = $8.90 x 1,010
Flexible budget variable overhead costs = $8,989
Step 3: Calculate the variable overhead spending variance
Variable overhead spending variance = Actual variable overhead costs - Flexible budget variable overhead costs
Variable overhead spending variance = $8,888 - $8,989
Variable overhead spending variance = $101 Unfavorable
Step 4: Calculate the variable overhead efficiency variance
Variable overhead efficiency variance = (Standard hours allowed for actual output - Actual hours worked) x Standard variable overhead rate
Standard hours allowed for actual output = Actual output x Quantity standard
Standard hours allowed for actual output = 4,900 x 0.20
Standard hours allowed for actual output = 980
Variable overhead efficiency variance = (980 - 1,010) x $8.90
Variable overhead efficiency variance = -30 x $8.90
Variable overhead efficiency variance = $267 Unfavorable
Therefore, the answer is C) $267 Unfavorable
Learning Objectives
- Understand how to calculate variable overhead efficiency variances.
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