Buckingham Company Buckingham Company uses a standard cost system for its production process and applies overhead based on direct labor hours.The following information is available for May when Buckingham produced 4,500 units:

Standard:

DLH per unit 2.50

Variable overhead per DLH $1.75

Fixed overhead per DLH $3.10

Budgeted variable overhead $21,875

Budgeted fixed overhead $38,750

Actual:

Direct labor hours 10,000

Variable overhead $26,250

Fixed overhead $38,000

Refer to Buckingham Company.Using the three-variance approach,what is the efficiency variance? A)$9,937 F B)$2,187 F C)$2,187 U D)$2,937 F

Question

Buckingham Company
Buckingham Company uses a standard cost system for its production process and applies overhead based on direct labor hours.The following information is available for May when Buckingham produced 4,500 units:

Standard:
DLH per unit	2.50
Variable overhead per DLH	$1.75
Fixed overhead per DLH	$3.10
Budgeted variable overhead	$21,875
Budgeted fixed overhead	$38,750

Actual:
Direct labor hours	10,000
Variable overhead	$26,250
Fixed overhead	$38,000

Refer to Buckingham Company.Using the three-variance approach,what is the efficiency variance? A)$9,937 F B)$2,187 F C)$2,187 U D)$2,937 F

Quizplus · Accepted Answer

The efficiency variance is calculated as the difference between the standard cost for the actual production and the actual cost, focusing on the variable overhead component. The standard direct labor hours for actual production are 4,500 units * 2.5 DLH/unit = 11,250 DLH. The actual direct labor hours are 10,000 DLH. The variable overhead rate is $1.75 per DLH. The efficiency variance is (11,250 DLH - 10,000 DLH) * $1.75/DLH = 1,250 DLH * $1.75/DLH = $2,187.50, which is favorable because actual labor hours were less than the standard hours for the actual production, indicating efficiency.

Buckingham Company Buckingham Company Uses a Standard Cost System for Its Production