Figure 17-5
Ebola Company has developed the following standards for one of its products: $\begin{array}{ll}
\text { Direct materials } & 20 \text { pounds } \times £ 4 \text { per pound } \
\text { Direct labour } & 5 \text { hours } \times £ 18 \text { per hour } \
\text { Variable overhead } & 5 \text { hours } \times £ 4 \text { per hour }
\end{array}$ The following activities occurred during the month of October: $\begin{array}{ll}
\text { Materials purchased } & 230,000 \text { pounds at } £ 4.20 \text { per pound } \
\text { Materials used } & 220,000 \text { pounds } \
\text { Units produced } & 10,000 \text { units } \
\text { Direct labour } & 51,000 \text { hours at } £ 17.70 \text { per hour } \
\text { Actual variable overhead } & £ 240,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-5. Ebola's variable overhead efficiency variance would be
A)£4,000 favourable.
B)£4,000 unfavourable.
C)£8,000 favourable.
D)£12,000 unfavourable.

Question

Quizplus · Accepted Answer

The variable overhead efficiency variance is calculated as the difference between the standard variable overhead cost for the actual production and the actual variable overhead cost. The standard variable overhead rate is £4 per hour, and the standard hours for the actual production (10,000 units) would be 50,000 hours (10,000 units * 5 hours per unit). The actual hours worked were 51,000 hours. Therefore, the variance is (50,000 hours - 51,000 hours) * £4 per hour = -1,000 hours * £4 = £4,000 unfavourable.

Figure 17-5 Ebola Company Has Developed the Following Standards for One

Figure 17-5
Ebola Company Has Developed the Following Standards for One