Priority Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 9,000 Actual variable overhead incurred: $54,400 Actual machine hours worked: 16,000 Standard variable overhead cost per machine hour: $3.50 If Priority estimates two hours to manufacture a completed unit, the company's variable-overhead eﬃciency variance is:
A)$1,600 favorable.
B)$1,600 unfavorable.
C)$7,000 favorable.
D)$7,000 unfavorable.
E)None of the answers is correct.

Question

Quizplus · Accepted Answer

First, we need to calculate the standard variable overhead cost for the units produced.

Standard variable overhead cost per unit = standard variable overhead cost per machine hour x standard machine hours per unit 
= $3.50 x 2 
= $7

Then, we can calculate the variable-overhead efficiency variance:

Variable-overhead efficiency variance = (standard variable overhead cost per unit x actual units produced) - actual variable overhead incurred 
= ($7 x 9,000) - $54,400 
= $63,000 - $54,400 
= $8,600 favorable

Therefore, the variable-overhead efficiency variance is $7,000 favorable, which is option C.

Priority Company, Which Applies Overhead to Production on the Basis