Question

Your company has decided to allocate variable manufacturing overhead based on machine hours. Here is your company’s data and your company uses a standard costing system.

Budgeted output units                                                                         62,000 units

Budgeted machine-hours                                                                    38,750 hours

Budgeted variable manufacturing overhead costs for 38,750 hours            $348,750

Actual output units produced                                                               33,000 units

Actual machine-hours used                                                                23,300 hours

Actual variable manufacturing overhead costs                                           $384,000

What is the variable overhead rate variance and the variable overhead efficiency variance, rounded? Negative numbers denote a negative variance, positive numbers denote a positive variance.

Select one:

a. None of the choices are correct.

b. $174,299, ($24,074)

c. $(174,299), $24,074

d. $174,299, $24,074

e. $(174,299), ($24,074)

(10)

Answer 1

The details provided are:

Particulars	Budgeted	Actuals
Output units	62,000.00	33,000
Machine hours	38,750.00	23,300
Machine hours per unit - hours/units	0.6250	0.7061
Variable manufacturing overhead	348,750	384,000
Rate per hour= variable manuf overhead cost / machine hour	9.0000	16.4807

Variable overhead rate variance
Actual Rate A	16.4807
Budgeted Rate B	9.0000
Differential rate (A-B)	7.4807
Actual hours worked	23,300
Variable overhead rate variance = actual hours worked x differential rate	174,300

The variance is unfavourable

Variable overhead effeciency variance
Actual units produced	33,000
Actual Machine hours	23,300
Budgeted hours for the production= actual units produced 33,000 x budgeted machine hours per unit (0.63)	20,625
Differential hours (A-B)	2,675
Budgeted variable manuf overhead hour rate	9
Variable overhead efficiency variance = actual hours worked x differential rate	24,075

The variance is unfavourable

To summarise

Variable overhead rate variance = (174,300)

Variable overhead efficiency = (24,075)

The answer is option e