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A company has determined that the standard for labor is 2 direct labor hours per unit produced. The variable overhead application rate is $1 per direct labor hour. If the company produces 1000 units with 1930 direct labor hours and the actual variable overhead is $2200, what is the variable overhead efficiency variance? A) $70 favorable B) $70 unfavorable C) $80 favorable D) $80 unfavorable.
Please explain, thanks!
Expert Answer
A.$70 favorable.
first ,we shall calcualate the standard hours for acutal output.
=> units produced * standard labour hours per unit
=>1000 units * 2 hours =>2,000 hours.
now,
variable overhead efficiency variance = [(standard hours)* (standard variable overhead rate per hour)] – [(acutal hours ) *(standard variable overhead per hour)]
=>(2,000) hours * ($1) – (1930 hours)*($1) =>$2000 – $1930 =>$70 favourable…..(since actual is less than standard it is a favorable variance).
