XTA Limited uses a standard costing system for all its products. Product E's standard specifies 4 machine hours of production time and absorbs variable overheads at the standard rate of £2 per machine hour. Budgeted production of Product E is 10,000 units per annum. For the financial year ended 31 January 2019, it was calculated that the machine hours actually used for each Product E were 3.9 hours while the actual cost of variable overhead was £2.10 per machine hour. Actual production was 9,800 units of Product
A) £1,862 Unfavourable
B) £1,960 Favourable
C) £2,000 Favourable
D) £3,822 Unfavourable

Question

Quizplus · Accepted Answer

The variable overhead efficiency variance is calculated as (Standard hours for actual production - Actual hours) x Standard rate. Standard hours for actual production = 9,800 units x 4 hours = 39,200 hours. Actual hours = 9,800 units x 3.9 hours = 38,220 hours. Efficiency variance = (39,200 - 38,220) x £2 = £1,960 Favourable.

XTA Limited Uses a Standard Costing System for All Its