Latimer Textiles Inc. Latimer Textiles Inc. incurred actual variable overhead expenses of $27,000 in the current year for the production of 8,000 units. Variable overhead was applied at a rate of $1.75 per direct labor hour and 2 direct labor hours were budgeted for each unit. The company used 17,400 direct labor hours for production.
Refer to the Latimer Textiles Inc. information above. What was Latimer's variable overhead efficiency variance?
A) $3,450 U
B) $3,450 F
C) $2,450 U
D) $2,450 F

Question

Quizplus · Accepted Answer

Variable overhead efficiency variance measures the difference between the actual hours of direct labor used and the budgeted hours of direct labor allowed, multiplied by the standard variable overhead rate per hour.

Budgeted hours of direct labor allowed = 2 direct labor hours per unit x 8,000 units = 16,000 direct labor hours
Variable overhead rate per direct labor hour = $1.75

Variable overhead efficiency variance = (actual direct labor hours - budgeted direct labor hours) x variable overhead rate per hour
= (17,400 - 16,000) x $1.75
= $2,450 U

Therefore, the answer is C, $2,450 U.