The following standards for variable overhead have been established for a compan
ID: 2493789 • Letter: T
Question
The following standards for variable overhead have been established for a company that makes only one product: Required: What is the variable overhead rate variance for the month? (Input the amount as a positive value. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.) What is the variable overhead efficiency variance for the month? (Input the amount as a positive value. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)Explanation / Answer
Given / Available Data:
Standard Hours per Unit of Output = 5.9 Hours
Standard Variable Overhead Rate = $14.00 p.h.
Actual Hours = 9,400 hours
Actual Total Variable Overhead Cost = $125,140
Actual Output = 1,580 units
Workings:
1. Actual Overhead Rate = Actual Total Variable Overhead Cost / Actual Hours
= $125,140 / 9,400 hours
= $13.3128 p.h.
2. Standard Hours per Actual Output = Standard Hour per Unit X Actual Output
= 5.9 Hours X 1,580
= 9,322
Calculation of Variances:
1. Variable overhead Rate variance = Actual hours worked x (Actual overhead rate - standard overhead rate)
= 9,400 X (13.3128 - 14.00)
= $6,460 Favourable
2. Variable overhead efficiency variance = Standard overhead rate x (Actual hours - standard hours)
= 14.00 X (9,400 – 9,322)
= $1,092 Unfavourable