Question

Brummer Corporation makes a product whose variable overhead standards are based on direct labor-hours. The quantity standard is 0.10 hours per unit. The variable overhead rate standard is $9.60 per hour. In January the company produced 7,500 units using 810 direct labor-hours. The actual variable overhead rate was $9.50 per hour.

The variable overhead efficiency variance for January is:

Multiple Choice

• $570 U

• $570 F

• $576 U

• $576 F

Answer 1

Calculation for variable overhead efficiency variance for January =

(Actual labour hours - Budgeted labour hours) × Standard variable overhead hourly rate

Actual labour hours = 810 hours

Budgeted labour hours = Quantity produced × Standard hours per unit

   = 7500 units × 0.10 hours per unit

= 750 hours

Standard variable overhead hourly rate = $9.60 per hour

Variable overhead efficiency variance =

(810 hours - 750 hours) × $9.60

= 60 hours × $9.60

= $576

When the actual hours are more than the Budgeted hours, the variable overhead efficiency variance is unfavourable. Therefore, it is $576 U (Unfavourable)

Therefore, the correct answer is option 3rd, $576U.