Question

Miguez Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate			Standard Cost Per Unit
Direct materials		2.3	liters	$	7.00	per liter	$	16.10
Direct labor		0.7	hours	$	22.00	per hour	$	15.40
Variable overhead		0.7	hours	$	2.00	per hour	$	1.40

The company budgeted for production of 2,600 units in September, but actual production was 2,500 units. The company used 5,440 liters of direct material and 1,680 direct labor-hours to produce this output. The company purchased 5,800 liters of the direct material at $7.20 per liter. The actual direct labor rate was $24.10 per hour and the actual variable overhead rate was $1.90 per hour.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

1. The variable overhead efficiency variance for September is:

2. The variable overhead rate variance for September is:

Answer 1

Voh efficiency variance

= (SH-AH) * SR

= (2500*0.7 - 1680)*2

= (1750-1680)*2

= 140 Favourable

Answer 2

Correct answer--------------$168 F

Working

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    2.00	-	$                     1.90	)	x	1680
	$               168.00
	Variance		$                 168.00			Favourable-F

Answer 3

Variable overhead rate variance = AH*(AR-SR)

= 1,680 hours*($1.90 per hour – $2 per hour)

= $168 Favorable