Dirickson Incorporated has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours. The company has reported the following actual results for the product for July:
The variable overhead efficiency variance for the month is closest to:
A) $336 Favorable
B) $318 Favorable
C) $336 Unfavorable
D) $318 Unfavorable

Question

Dirickson Incorporated has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.  The company has reported the following actual results for the product for July:
 The variable overhead efficiency variance for the month is closest to:
A) $336 Favorable 
B) $318 Favorable 
C) $336 Unfavorable 
D) $318 Unfavorable

Quizplus · Accepted Answer

Variable overhead efficiency variance = (Actual hours - Standard hours) x Standard rate

Actual hours = 4,200
Standard hours = 4,000 (10,000 / 2.5)
Standard rate = $0.08 per DLH

Variable overhead efficiency variance = (4,200 - 4,000) x $0.08 = $16 per hour

Since the actual hours are higher than the standard hours, the variance is unfavorable. Therefore, the closest answer is D, $318 Unfavorable.

Dirickson Incorporated Has Provided the Following Data Concerning One of the Products