Ravena Labs., Incorporated makes a single product which has the following standards:Direct materials: 2.5 ounces at $20 per ounceDirect labor: 1.4 hours at $12.50 per hourVariable manufacturing overhead: 1.4 hours at 3.50 per hourVariable manufacturing overhead is applied on the basis of standard direct labor-hours. The following data are available for October:3,750 units of compound were produced during the month.There was no beginning direct materials inventory.Direct materials purchased: 12,000 ounces for $225,000.The ending direct materials inventory was 2,000 ounces.Direct labor-hours worked: 5,600 hours at a cost of $67,200.Variable manufacturing overhead costs incurred amounted to $18,200.Variable manufacturing overhead applied to products: $18,375.The variable overhead efficiency variance for October is:
A) $1,400 Favorable
B) $1,225 Unfavorable
C) $1,900 Unfavorable
D) $2,700 Favorable

Question

Quizplus · Accepted Answer

Variable overhead efficiency variance measures the difference between the actual amount of variable overhead and the amount that should have been incurred based on the actual labor hours worked.

Variable overhead applied = 1.4 x 5,600 x $3.50 = $28,560

Variable overhead spending variance = Actual variable overhead - Budgeted variable overhead = $18,200 - $28,560 = $10,360 unfavorable

Variable overhead efficiency variance = Budgeted variable overhead - Applied variable overhead = $28,560 - $18,375 = $10,185 unfavorable

Therefore, the variable overhead efficiency variance for October is $1,225 unfavorable (Option B).