Question

Dalton Company uses a standard costing system with direct labors hours being the basis (cost driver) for applying overhead.

Dalton Company’s standard cost card shows the following for one unit of product Beta.

	Std Qty	Std price (rate)	Std. cost
Direct materials	3.0 pounds	$14.00 per pound	$42.00
Direct labor	2.0 hours	$22.00 per hour	$44.00
Variable Overhead	2.0 hours	$1.50 per DL hour	$ 3.00
Fixed Overhead	2.0 hours	$10.00 per DL hour	$ 20.00
			$109.00

During the month of June the following was recorded by the company relative to its production of product Beta:

Planned level of production	5,000 units
Actual level of production	4,950 units
Direct materials purchased	14,500 pounds
Cost of direct materials purchased	$191,400
Direct materials placed into production	14,750 pounds
Direct labor incurred	9,840 hours
Actual direct labor cost	$222,384
Actual variable overhead cost	$16,236
Actual fixed overhead cost	$93,972

Compute the Variable Overhead quantity (efficiency) variance for the month.

• $240 U

• $90 U

• $90 F

• $240 F

Answer 1

Variable Overhead Efficiency Variance
(Standard variable overhead for production less Budgeted overhead for actual hours)
Standard variable overhead per unit	3
Actual production unit	4950
Standard variable overhead for production =                                           (4950*3) =14850
Standard variable overhead per hour	1.5
Actual hours	9840
Budgeted overhead for actual hours =                                                     (9840*1.5) =14760
Hence,Variable Overhead Efficiency Variance is                                (14850-14760) = 90
Variable Overhead Efficiency Variance is 90 (Favourable)