Question

Morgan Manufacturing makes a product with the following standard costs:

	Standard Quantity or Hours	Standard Price or Rate	Standard Cost per Unit
Direct materials	6.5 kilos	$1.00 per kilo	$6.50
Direct labor	0.3 hours	$10.00 per hour	$3.00
Variable overhead	0.3 hours	$4.00 per hour	$1.20

In January the company's budgeted production was 7,400 units but the actual production was 7,200 units. The company used 45,580 kilos of the direct material and 2,400 direct labor-hours to produce this output. During the month, the company purchased 48,500 kilos of the direct material at a cost of $53,350. The actual direct labor cost was $18,473 and the actual variable overhead cost was $7,714.

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 January is:

Select one:

a. $960.00

b. $3,840.00

c. $27,360.00

d. $18,240.00

Answer 1

Variable overhead efficiency variance = Standard rate*(Actual hours-Standard hours)

Variable overhead efficiency variance = 4.00*(2400-7200*0.3)= $960.00 Unfavorable

Option A $960.00 is correct