Giguere Corporation applies manufacturing overhead to products on the basis of standard machine-hours. For the most recent month, the company based its budget on 2,000 machine-hours. Budgeted and actual overhead costs for the month appear below:
The company actually worked 1,920 machine-hours during the month. The standard hours allowed for the actual output were 1,760 machine-hours for the month. What was the overall variable overhead efficiency variance for the month?
A) $832 unfavorable
B) $220 favorable
C) $1,888 unfavorable
D) $1,056 favorable

Question

Giguere Corporation applies manufacturing overhead to products on the basis of standard machine-hours. For the most recent month, the company based its budget on 2,000 machine-hours. Budgeted and actual overhead costs for the month appear below: 
The company actually worked 1,920 machine-hours during the month. The standard hours allowed for the actual output were 1,760 machine-hours for the month. What was the overall variable overhead efficiency variance for the month?
A) $832 unfavorable 
B) $220 favorable 
C) $1,888 unfavorable 
D) $1,056 favorable

Quizplus · Accepted Answer

The variable overhead efficiency variance measures the impact of using more or fewer machine hours than expected (based on the standard hours allowed for the actual output) on the variable portion of manufacturing overhead costs. It is calculated as follows:

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

In this case: 
Actual hours = 1,920 
Standard hours allowed = 1,760 
Variable overhead rate = Actual variable overhead costs / Actual machine-hours = $11,360 / 1,920 = $5.92 per machine-hour

Therefore: 
Variable overhead efficiency variance = (1,920 - 1,760) x $5.92 = $948 unfavorable

The correct answer that is closest to $948 is C ($1,888 unfavorable), so this is the best choice.

Giguere Corporation Applies Manufacturing Overhead to Products on the Basis