Question

West Coast Containers manufactures a high quality container in which to ship electronic equipment. Actual production was 18,000 containers using 9,500 machine-hours. Actual variable costs were $20 per machine-hour. The current year operating budget is based on production of 20,000 containers with 0.8 machine-hour allowed per container. Variable manufacturing overhead is anticipated to be $220,000. Calculate the variable overhead rate and efficiency variances. Calculations s/b 2 decimal places.

Answer 1

Variable Overhead Rate Variance

Variable Overhead Rate Variance
Actual Hourly Variable Overhead Rate	20.00	Per Hour
Standard Hourly Variable Overhead Rate (Estimated $220,000 / Estimated Machine Hours (20,000*0.8 Mhs)	13.75	Per Hour
Variance or Difference in Rate	6.25	Per Hour
x Actual Machine Hours Worked	9,500	Hours
Variable Overhead Rate Variance	$59,375	Unfavorable

Variable Overhead Efficiency Variance

Variable Overhead Efficiency/Quantity Variance
Standard Hours Allowed for actual production:
Actual Production	18,000	Containers
x Allowed Standard Machine Hours Per Unit	0.8	Hours
Total Standard Hours Allowed for actual production (SHAP)	14400	Hours
Actual Hours Worked (AH)	9500	Hours
Variance or Difference in Hours	4900	hours
x Standard Hourly Variable Overhead Rate	$13.75	per hour
Variable Overhead Efficiency Variance	$67,375	Favorable

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