Question

wadding corporation applies manufacturing overhead to products on the basis of standard machine - hours. for the most recent month, the company based its budget on 4,400 machine - hours. budgeted and actual overhead costs for the month appear below.

the company actually worked 4,560 machine - hours during the month. the standard hours allowed for the actual output were 4,550 machine - hours for the month. what was the overall variable overhead efficiency variance for the month?

multiple choice

$540 favorable

$111 unfavorable

$260 favorable

$543 favorable

Explanation:

Step1: Calculate variable overhead rate

Variable overhead rate = (Budgeted variable overhead cost)/Budgeted machine - hours.
Budgeted variable overhead cost = \(11640 + 37200=\$48840\).
Budgeted machine - hours = \(4400\).
Variable overhead rate \(r=\frac{48840}{4400}=\$11.1\) per machine - hour.

Step2: Calculate variable overhead efficiency variance

Variable overhead efficiency variance formula: \(VOH_{efficiency\ variance}=(AH - SH)\times r\), where \(AH\) is actual hours, \(SH\) is standard hours allowed, and \(r\) is variable overhead rate.
\(AH = 4560\), \(SH = 4550\), \(r = 11.1\).
\(VOH_{efficiency\ variance}=(4560 - 4550)\times11.1\)
\(VOH_{efficiency\ variance}=10\times11.1=\$111\) (Unfavorable because \(AH>SH\)).

Answer:

\(111\) Unfavorable.