Question

Freytag Corporation's variable overhead is applied on the basis of direct labor-hours. The company has established the following variable overhead standards for product N06C:

Standard direct labor-hours		3.7	hours per unit of N06C
Standard variable overhead rate	$	5.50	per hour

The following data pertain to the most recent month's operations during which 1,800 units of product N06C were made:

Actual direct labor-hours worked		6,500
Actual variable overhead incurred	$	36,640

Required:

a. What was the variable overhead rate variance for the month?

b. What was the variable overhead efficiency variance for the month?

Answer 1

• Requirement [a]

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate = $ 36640 / 6500 hrs	)	x	Actual Labor Hours
(	$                                5.50	-	$                       5.63692307692	)	x	6500
	-890
	Variance		$                  890.00			Unfavourable-U

• Requirement [b]

Variable Overhead Efficiency Variance
(	Standard Hours = 1800 units x 3.7 hrs	-	Actual Hours	)	x	Standard Rate
(	6660	-	6500	)	x	$                           5.50
	880
	Variance		$                  880.00			Favourable-F