Question

TASK 5 - PC 4.5 Calculate fixed overhead total, expenditure and, where appropriate, volume, capacity and efficiency variance
Dhabia LLC, a producer of apple fruit juice has the following variable manufacturing overhead standard to produce a 5 litre apple juice in a bottle:
1.5 standard hours per a 5 litre apple juice at Dh 5.00 per direct labour hour.
Last week 1600 hours were worked to produce a 1,000 bottles of the 5 litre fruit juice and Dh 8,480 was spent for variable manufacturing overheads.
Required: Calculate the variable manufacturing overhead variance and indicate the following:

a)   Rate variance
b)   Efficiency variance
Note (State whether is Favourable or Unfavourable (Adverse).

a)   Rate variance

b)   Efficiency variance

Answer 1

Rate variance. The "rate" variance designation is most commonly applied to the labor rate variance, which involves the actual cost of direct labor in comparison to the standard cost of direct labor.

An efficiency variance is the difference between actual and budgeted quantities you purchased for a specific price. Here's the formula for efficiency variance: Efficiency variance = (Actual quantity – budgeted quantity) × (standard price or rate) A standard is a planned amount per unit.

Given
Standard hours	1.5 Hr p.u
hours spent	1600 hrs
standard quantity	1600/1.5
		1067 units
Actual quantity	1000
Rate variance
	autual quantity *(standard price - actual price)
	=1000*5-8480
	($3,480)
efficiency variance
	(Actual quantity – budgeted quantity) × (standard price or rate)
	(1000-1067)*5
	$335
Rate variance	$3480 adverse
efficiency variance	$335 adverse