Asked by Natalia Portugal on Jul 28, 2024
Verified
Dirickson Incorporated has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours. 
The company has reported the following actual results for the product for July:
The variable overhead efficiency variance for the month is closest to:
A) $336 Favorable
B) $318 Favorable
C) $336 Unfavorable
D) $318 Unfavorable
Variable Overhead
Overhead costs that fluctuate with changes in production level or business activity, such as utilities for machinery.
Efficiency Variance
The difference between the standard cost of labor or materials for actual production and the actual cost incurred, reflecting how efficiently resources are utilized.
Direct Labor-Hours
The total hours worked directly on the production of goods or delivery of services.
- Understand the computation and significance of variable manufacturing overhead variances, including both efficiency and rate variances.
Verified Answer
Actual hours = 4,200
Standard hours = 4,000 (10,000 / 2.5)
Standard rate = $0.08 per DLH
Variable overhead efficiency variance = (4,200 - 4,000) x $0.08 = $16 per hour
Since the actual hours are higher than the standard hours, the variance is unfavorable. Therefore, the closest answer is D, $318 Unfavorable.
Learning Objectives
- Understand the computation and significance of variable manufacturing overhead variances, including both efficiency and rate variances.
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