Valera Corporation makes a product with the following standards for labor and variable overhead: The company budgeted for production of 5,300 units in July, but actual production was 5,400 units. The company used 2,130 direct labor-hours to produce this output. The actual variable overhead rate was $6.10 per hour. The company applies variable overhead on the basis of direct labor-hours.The variable overhead efficiency variance for July is:
A) $183 Favorable
B) $180 Unfavorable
C) $180 Favorable
D) $183 Unfavorable

Question

Valera Corporation makes a product with the following standards for labor and variable overhead:  The company budgeted for production of 5,300 units in July, but actual production was 5,400 units. The company used 2,130 direct labor-hours to produce this output. The actual variable overhead rate was $6.10 per hour. The company applies variable overhead on the basis of direct labor-hours.The variable overhead efficiency variance for July is:
A) $183 Favorable 
B) $180 Unfavorable 
C) $180 Favorable 
D) $183 Unfavorable

Quizplus · Accepted Answer

Variable overhead efficiency variance = (Standard hours for actual output - Actual hours) x Standard variable overhead rate

Standard hours for actual output = Standard hours per unit x Actual output
= 2.9 DLHs per unit x 5,400 units
= 15,660 DLHs

Actual variable overhead = Actual hours x Actual variable overhead rate
= 2,130 DLHs x $6.10 per DLH
= $12,993

Standard variable overhead = Standard hours for actual output x Standard variable overhead rate
= 15,660 DLHs x $6.00 per DLH
= $93,960

Variable overhead efficiency variance = (15,660 DLHs - 2,130 DLHs) x $6.00 per DLH
= 13,530 DLHs x $6.00 per DLH
= $81,180 Favorable

Therefore, the correct answer is C, $180 Favorable.

Valera Corporation Makes a Product with the Following Standards for Labor