Question

Bondi Corporation makes automotive engines. For the most recent month, budgeted production was 3,500 engines. The standard power cost is $1.50 per machine-hour. The company's standards indicate that each engine requires 11.3 machine-hours. Actual production was 3,800 engines. Actual machine-hours were 41,340 machine-hours. Actual power cost totaled $66,642. Required: Determine the rate and efficiency variances for the variable overhead item power cost. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Variable overhead rate variance Variable overhead efficiency variance

Answer 1

1)Variable overhead rate Variance = Actual hours worked x ( Standard overhead rate - Actual overhead rate)

Actual overhead rate = $ 66,642 cost / 41,340 hours

= $ 1.61 per hour

Variable over head rate Variance = 41,340 x (1.50 - 1.61)

=$ 4632 "U" Unfavourable

2)Variable overhead efficiency Variance = {Standard hours for Actual Production - Actual hours for Actual production } x Standard rate

= (3800 engines * 11.3 per machine) - 41340 x $ 1.50

=(42,940 - 41,340) x $1.50

=1600 hours x $ 1.50

= $ 2400 "F" Favourable