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

To calculate the variable overhead efficiency variance, we need to use the following formula:

Variable overhead efficiency variance = (Actual DL hours - Standard DL hours allowed) x Standard variable overhead rate per DL hour

Actual DL hours = 49,000
Standard DL hours allowed = 45,000 ($900,000 ÷ $20 per DL hour)
Standard variable overhead rate per DL hour = $4 per DL hour

Variable overhead efficiency variance = (49,000 - 45,000) x $4 = $16,000 unfavorable

Therefore, the correct answer is D) $15,000 unfavorable since this is the closest option to $16,000 unfavorable.

Hamilton Pty Ltd Uses a Standard Costing System for Product