A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company bases its variable manufacturing overhead standards on direct labor-hours.
The following data pertain to operations for the last month:

-The standard number of machine-hours allowed for July production is closest to:
A) 1,600 hours
B) 1,700 hours
C) 1,300 hours
D) 1,500 hours

Question

A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company bases its variable manufacturing overhead standards on direct labor-hours.
  The following data pertain to operations for the last month:
 
-The standard number of machine-hours allowed for July production is closest to:
A) 1,600 hours 
B) 1,700 hours 
C) 1,300 hours 
D) 1,500 hours

Quizplus · Accepted Answer

AH × AR = $11,310
Variable overhead rate variance = (AH × AR) − (AH × SR)
$1,710 U = $11,310 - (1,600 hours × SR)
$1,710 = $11,310 - (1,600 hours × SR)
1,600 hours × SR = $11,310 - $1,710
1,600 hours × SR = $9,600
SR = $9,600 ÷ 1,600 hours
SR = $6 per hour
Total variable overhead spending variance = Variable overhead rate variance + Variable overhead efficiency variance
$2,310 U = $1,710 U + Variable overhead efficiency variance
Variable overhead efficiency variance = $2,310 U - $1,710 U = $600 U
Variable overhead efficiency variance = (AH − SH) × SR
$600 U = (1,600 hours - SH) × $6 per hour
$600 = (1,600 hours - SH) × $6 per hour
$600 = $9,600 - (SH × $6 per hour)
SH × $6 per hour = $9,600 - $600
SH × $6 per hour = $9,000
SH = $9,000 ÷ $6 per hour
SH = 1,500 hours

A Manufacturing Company That Has Only One Product Has Established