Colina Production Company uses a standard costing system. The following information pertains to 2016. Direct labor hours is the driver used to assign overhead costs to products. Actual production 5,500 units
Actual factory overhead costs ($16,500 is fixed) $40,125
Actual direct labor costs (11,250 hours) $131,625
Standard direct labor for 5,500 units:
Standard hours allowed 11,000 hours
Labor rate $12.00
The factory overhead rate is based on an activity level of 10,000 direct labor hours. Standard cost data for 5,000 units is as follows:
Variable factory overhead $22,500
Fixed factory overhead 13,500
Total factory overhead $36,000
What is the variable overhead efficiency variance for Colina Production Company?
A) $562.50 (F)
B) $3,000.00 (U)
C) $1,687.50 (F)
D) $562.50 (U)

Question

Quizplus · Accepted Answer

The variable overhead efficiency variance is calculated as (Actual hours - Standard hours allowed) x Standard variable overhead rate per hour. The standard variable overhead rate is $22,500 / 10,000 hours = $2.25 per hour. The variance is (11,250 - 11,000) x $2.25 = $562.50 (U).

Colina Production Company Uses a Standard Costing System