Question

Tharaldson Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate			Standard Cost Per Unit
Direct materials		6.8	ounces	$	4.00	per ounce	$	27.20
Direct labor		0.5	hours	$	12.00	per hour	$	6.00
Variable overhead		0.5	hours	$	7.00	per hour	$	3.50

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

Originally budgeted output		2,200	units
Actual output		2,700	units
Raw materials used in production		16,900	ounces
Purchases of raw materials		18,000	ounces
Actual direct labor-hours		530	hours
Actual cost of raw materials purchases	$	45,000
Actual direct labor cost	$	12,200
Actual variable overhead cost	$	3,100

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 June is:

Multiple Choice

• $5,740 U

• $5,740 F

• $6,150 F

• $6,150 U

Answer 1

Answer

$5,740 F

Calculations:

Given:

Standard rate	$ 7.00
Standard hours (2700*0.5)	1,350
Actual rate	$ 5.85
Actual hours	530

Formula:

Variable Overhead efficiency Variance = (Standard hours -Actual hours)*Standard rate

Variable Overhead efficiency Variance = (1350 - 530) * $ 7

Variable Overhead efficiency Variance = 5740 (F)