Hamilton Pty Ltd uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply overhead costs. The following amounts were budgeted for the year:
The following were the actual results:
Calculate the amount of variable overhead efficiency variance.
A) $25 000 favourable
B) $25 000 unfavourable
C) $15 000 favourable
D) $15 000 unfavourable

Question

Hamilton Pty Ltd uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply overhead costs. The following amounts were budgeted for the year: 
The following were the actual results: 
Calculate the amount of variable overhead efficiency variance.
A) $25 000 favourable 
B) $25 000 unfavourable 
C) $15 000 favourable 
D) $15 000 unfavourable

Quizplus · Accepted Answer

Variable overhead efficiency variance = (actual activity – standard activity) x standard rate

Actual activity = 20,000 hours 
Standard activity = 22,000 hours 
Standard rate per hour = $5

Variable overhead efficiency variance = (20,000 – 22,000) x $5 = $-10,000 or $10,000 unfavourable

Therefore, the answer is D) $15,000 unfavourable is incorrect, and B) $25,000 unfavourable is correct.

Hamilton Pty Ltd Uses a Standard Costing System for Product