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		7.2	ounces	$	2.00	per ounce	$	14.40
Direct labor		0.3	hours	$	16.00	per hour	$	4.80
Variable overhead		0.3	hours	$	5.00	per hour	$	1.50

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

Originally budgeted output		2,600	units
Actual output		2,200	units
Raw materials used in production		20,400	ounces
Purchases of raw materials		21,500	ounces
Actual direct labor-hours		500	hours
Actual cost of raw materials purchases	$	42,000
Actual direct labor cost	$	12,600
Actual variable overhead cost	$	3,300

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:

Answer 1

Variable Overhead Efficiency Variance = (Actual labor hours - Standard labor hours for actual output) * Standard Variable overhead rate per hour

= (500 hours - [0.3 hours per unit * 2,200 units]) * $5 per hour

= (500 hours - 660 hours) * $5 per hour

= -160 hours * $5 per hour

= $800 Favorable

Therefore, variable overhead efficiency variance is $800 favorable.

Answer 2

Variable overhead efficiency variance is = Standard Variable Overhead Rate per hour * (Actual hours - Standard hours) Variable overhead efficiency variance is = 5.00 (500-(0.3*2200)) Variable overhead efficiency variance is = 5.00*-160 Variable overhead efficiency variance is = 800 Favourable