Exhibit 19-7 The following figures represent 100% capacity for Starr Manufacturing:
Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved.
-Refer to Exhibit 19-7. Based on the information above, the manufacturing overhead efficiency variance is:

Question

Exhibit 19-7 The following figures represent 100% capacity for Starr Manufacturing:
 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved.
-Refer to Exhibit 19-7. Based on the information above, the manufacturing overhead efficiency variance is:

Quizplus · Accepted Answer

The formula for manufacturing overhead efficiency variance is:

Actual Hours x Standard Rate - Actual Variable Manufacturing Overhead Costs

Using the information given: 
Actual Hours = 6,400 
Standard Rate = $20,000/6,000 hours = $3.33 per direct labor hour 
Actual Variable Manufacturing Overhead Costs = $20,000

Manufacturing overhead efficiency variance = (6,400 hours x $3.33 per hour) - $20,000 = $1,280 unfavorable

Therefore, the correct answer is B, $1,200 unfavorable (since it is the closest option to $1,280).

Exhibit 19-7 the Following Figures Represent 100% Capacity for Starr