Merle Corporation applies manufacturing overhead to products on the basis of sta

Question

Merle Corporation applies manufacturing overhead to products on the basis of standard machine-hours. For the most recent month, the company based its budget on 4,000 machine-hours. Budgeted and actual overhead costs for the month appear below:

The company actually worked 3,690 machine-hours during the month. The standard hours allowed for the actual output were 3,620 machine-hours for the month. What was the overall variable overhead efficiency variance for the month?

A.

$721 Unfavorable

B.

$467 Favorable

C.

$254 Unfavorable

D.

$880 Favorable

Based on 4000 Mach Hours Var Ovhd Cost Supplies $                 14,000.00 $                 13,150.00 Indirect Labor 27200 24390 Fixed Ovhd Cost Supervision 19900 19540 Utilities 4700 4360 Factory depreciation 8800 8620 Total Ovh Cost $                 74,600.00 $                 70,060.00

Explanation / Answer

Calculation of variable overhead efficiency variance:

Variable overhead efficiency variance = (Actual Hours - Standard Hours)* Standard rate per hour

Actual Hours = actually worked 3,690 machine-hours

Standard Hours = The standard hours allowed for the actual output =3,620 machine-hours

Standard rate per hour = Total Budgeted variable overhead / Budgeted Hours = ($14000+$27200) / 4000 = $10.30 Per hour

Hence , Variable overhead efficiency variance = (3690-3620) *10.30 = $721 Unfavorable

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