The Maxwell Corporation has a standard costing system in which variable manufacturing overhead is assigned to production on the basis of standard machine-hours. The following data are available for July:

• Actual variable manufacturing overhead cost incurred: $22,620
• Actual machine-hours worked: 1,600 hours
• Variable overhead rate variance: $3,420 Unfavorable
• Total variable overhead spending variance: $4,620 Unfavorable

-The variable overhead efficiency variance for July is:
A)$8,040 Unfavorable
B)$8,040 Favorable
C)$1,200 Unfavorable
D)$1,200 Favorable

Question

The Maxwell Corporation has a standard costing system in which variable manufacturing overhead is assigned to production on the basis of standard machine-hours. The following data are available for July:

• Actual variable manufacturing overhead cost incurred: $22,620
• Actual machine-hours worked: 1,600 hours
• Variable overhead rate variance: $3,420 Unfavorable
• Total variable overhead spending variance: $4,620 Unfavorable

-The variable overhead efficiency variance for July is:
A)$8,040 Unfavorable
B)$8,040 Favorable
C)$1,200 Unfavorable
D)$1,200 Favorable

Quizplus · Accepted Answer

The formula for variable overhead efficiency variance is:

Variable Overhead Efficiency Variance = (Actual Hours - Standard Hours) x Standard Rate

Given:
Standard Hours per Unit = 0.5 hour
Standard Rate per Hour = $12 per hour
Actual Hours worked = 1,800 hours
Actual Production = 3,600 units

Total Standard Hours allowed = Standard Hours per Unit x Actual Production
= 0.5 x 3,600 = 1,800 hours

Standard Variable Overhead for July = Standard Hours allowed x Standard Rate per Hour
= 1,800 x $12/hour = $21,600

Actual Variable Overhead for July = $30,240

Variable Overhead Efficiency Variance = (Actual Hours - Standard Hours) x Standard Rate
= (1,800 - 1,800) x $12
= $0

Therefore, the variance is $0 or no variance. However, the problem offers the choice of both positive and negative numbers. The closest to the actual answer is $1,200 in the unfavorable direction, which is not exactly right, but the closest among the choices offered.

The Maxwell Corporation Has a Standard Costing System in Which