Galla Corporation makes a product with the following standard costs: The company budgeted for production of 2,400 units in June, but actual production was 2,500 units. The company used 19,850 pounds of direct material and 980 direct labor-hours to produce this output. The company purchased 21,700 pounds of the direct material at $6.70 per pound. The actual direct labor rate was $19.20 per hour and the actual variable overhead rate was $1.80 per hour. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for June is:
A)$36 U
B)$36 F
C)$40 U
D)$40 F

Question

Galla Corporation makes a product with the following standard costs:  The company budgeted for production of 2,400 units in June, but actual production was 2,500 units. The company used 19,850 pounds of direct material and 980 direct labor-hours to produce this output. The company purchased 21,700 pounds of the direct material at $6.70 per pound. The actual direct labor rate was $19.20 per hour and the actual variable overhead rate was $1.80 per hour. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for June is:
A)$36 U 
B)$36 F 
C)$40 U 
D)$40 F

Quizplus · Accepted Answer

Variable overhead efficiency variance measures how efficiently the company uses its direct labor-hours. The formula to calculate it is as follows:

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

Standard hours = Output level x Standard hours per unit of output

Standard hours per unit of output = Standard direct labor hours per unit of output

Given data:

Output level = 2,500 units
Standard labor hours per unit of output = 0.4 direct labor hours per unit
Actual direct labor hours = 980 hours
Standard direct labor hours = 0.4 x 2,400 = 960 hours
Standard variable overhead rate = $1.80 per hour

Variable overhead efficiency variance = (980 hours - 960 hours) x $1.80 per hour
= 20 hours x $1.80 per hour
= $36 F (unfavorable variance)

Therefore, the correct answer is option D, $36 F.

Galla Corporation Makes a Product with the Following Standard Costs