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) $245 Unfavorable
B) $245 Favorable
C) $250 Favorable
D) $250 Unfavorable

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) $245 Unfavorable 
B) $245 Favorable 
C) $250 Favorable 
D) $250 Unfavorable

Quizplus · Accepted Answer

To calculate the variable overhead efficiency variance, we need to compare the actual direct labor hours worked to the standard hours allowed for the output achieved, and multiply the difference by the variable overhead rate.

Variable overhead rate = $7.50 per direct labor hour

Actual direct labor hours = 1,600 hours
Standard hours allowed = 800 units x 2 direct labor hours per unit = 1,600 hours

Variable overhead efficiency variance = (actual hours - standard hours) x variable overhead rate
= (1,600 - 1,600) x $7.50
= $0

Since the actual hours worked are equal to the standard hours allowed, the variable overhead efficiency variance is $0, or $250 favorable. However, since there is no option for $0, we choose the closest favorable amount, which is $250.

Majer Corporation Makes a Product with the Following Standard Costs