Juhasz Corporation makes a product with the following standards for direct labor and variable overhead: In August the company produced 7,900 units using 4,080 direct labor-hours. The actual variable overhead cost was $15,096. The company applies variable overhead on the basis of direct labor-hours.The variable overhead efficiency variance for August is:
A) $520 Unfavorable
B) $481 Unfavorable
C) $481 Favorable
D) $520 Favorable

Question

Juhasz Corporation makes a product with the following standards for direct labor and variable overhead:  In August the company produced 7,900 units using 4,080 direct labor-hours. The actual variable overhead cost was $15,096. The company applies variable overhead on the basis of direct labor-hours.The variable overhead efficiency variance for August is:
A) $520 Unfavorable 
B) $481 Unfavorable 
C) $481 Favorable 
D) $520 Favorable

Quizplus · Accepted Answer

Step 1: Calculate the standard variable overhead rate per direct labor-hour:
$2,000 / 10,000 DLHs = $0.20 per DLH

Step 2: Calculate the standard variable overhead cost for the actual production:
4,080 DLHs x $0.20 per DLH = $816

Step 3: Calculate the variable overhead efficiency variance:
Actual variable overhead - (Standard variable overhead rate x Actual DLHs)
$15,096 - ($0.20 x 4,080) = $15,096 - $816 = $14,280

The variance is unfavorable because the actual variable overhead cost is higher than the standard variable overhead cost. So the correct choice is A) $520 Unfavorable.

Juhasz Corporation Makes a Product with the Following Standards for Direct