Question

Lamp Light Limited (LLL) manufactures lampshades. It applies variable overhead on the basis of direct labor hours. Information from LLL's standard cost card follows: Standard Quantity 0.6 Standard Rate $0.80 Standard Unit Cost $0.48 Variable manufacturing overhead During August, LLL had the following actual results: Units produced and sold Actual variable overhead Actual direct labor hours $ 26,300 9,590 17,000 Required: Compute LLL's variable overhead rate variance, variable overhead efficiency variance, and over- or underapplied variable overhead. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for Favorable/Overapplied and "U" for Unfavorable/Underapplied.) Variable Overhead Rate Variance Variable Overhead Efficiency Variance Variable Overhead Spending Variance

Answer 1

Variable Overhead Rate Variance	$4010 F
Variable Overhead Efficiency Variance	$976 U
Variable Overhead Spending Variance	$3034 F

Explanations :-

Variable Overhead Rate Variance :-

(SR - AR) * A Hours

AR = Actual OH/Actual Hours

      = $9590/17000 = $0.5641

($0.80 - $0.5641) * 17000 = $4010 F

Variable overhead Efficiency Variance :-

(S Hours - A hours) * SR

S Hours = SH per unit * Actual output

    = 0.6 * 26300 = 15780

(15780 - 17000) * $0.80 = $976 U

Variable Overhead Spending Variance :-

Standard Cost - Actual cost

($0.48 * 26300) - $9590 = $3034 F