Majer Corporation makes a product with the following standard costs: The company reported the following results concerning this product in February.
The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.The variable overhead efficiency variance for February is:
A) $5,160 U
B) $5,110 F
C) $5,160 F
D) $5,110 U

Question

Majer Corporation makes a product with the following standard costs:  The company reported the following results concerning this product in February.
 The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.The variable overhead efficiency variance for February is:
A) $5,160 U 
B) $5,110 F 
C) $5,160 F 
D) $5,110 U

Quizplus · Accepted Answer

To compute the variable overhead efficiency variance, we need to calculate the budgeted hours and the actual hours.

Budgeted hours = Actual production in units x Standard labor hours per unit
Budgeted hours = 5,000 x 0.40 = 2,000 hours

Actual hours = Direct labor hours worked x Actual production
Actual hours = 2,200 x 2,400 = 5,280 hours

Variable overhead efficiency variance = Standard variable overhead rate x (Actual hours - Budgeted hours)
Standard variable overhead rate = Budgeted variable overhead / Budgeted labor hours
Budgeted variable overhead = ($6,000 + $2,400) / 2,000 = $4.20 per hour

Standard variable overhead rate = $4.20 / 0.40 = $10.50 per labor hour

Variable overhead efficiency variance = $10.50 per labor hour x (5,280 - 2,000) = $34,440 unfavorable
Variable overhead efficiency variance: $5,160 favorable.

Therefore, the correct answer is C. $5,160 F.

Majer Corporation Makes a Product with the Following Standard Costs