Question

Bulluck Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate
Direct materials		3.8	grams	$	1.30	per gram
Direct labor		0.5	hours	$	14.00	per hour
Variable overhead		0.5	hours	$	2.30	per hour

The company reported the following results concerning this product in July.

Actual output		3,300	units
Raw materials used in production		11,670	grams
Actual direct labor-hours		1,380	hours
Purchases of raw materials		12,400	grams
Actual price of raw materials purchased	$	1.50	per gram
Actual direct labor rate	$	11.70	per hour
Actual variable overhead rate	$	2.40	per hour

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The variable overhead efficiency variance for July is:

Multiple Choice

• $621 U

• $648 U

• $621 F

• $648 F

Answer 1

Answer)

Calculation of Variable overhead efficiency variance

Variable overhead efficiency variance = (Standard labor hours for actual output – Actual labor hours consumed) X Standard variable overhead rate per hour

                                                                          = (1,650 hours – 1,380 hours) X $ 2.30 per hour

                                                                          = $ 621 (Favorable)

Therefore variable overhead efficiency variance is $ 621 (Favorable).

Working Note:

Calculation of Standard labor hours for Actual output

Standard labor hours for actual output = Standard labor hours per unit of output X number of units produced

                                                                             = 0.50 hours per unit X 3,300 units

                                                                              = 1,650 hours