Branch Corp. uses a standard cost system to account for the costs of its one pro
ID: 2585472 • Letter: B
Question
Branch Corp. uses a standard cost system to account for the costs of its one product. Variable overhead is applied using direct labor hours. Standards allowed for each unit are 2.9 hours of labor at a variable overhead rate of $12. During November, Branch Corp. produced 2,250 units. Payroll totaled $97,760 for 7,110 hours worked. Variable overhead incurred totaled $87,440 a. Calculate the variable overhead rate variance. (Do not round your intermediate calculations. Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).) te Variance b. Calculate the variable overhead efficiency variance. (Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance)) Type here to search - +Explanation / Answer
Answer:-
Variable overhead rate variance = (Standard rate – Actual rate) * Actual hours
= ($12 per hour - $12.298172)* 7110 hours
= $2120 Unfavourable
Variable overhead efficiency variance=(Standard hours-Actual hours)*Standard rate per hour
=(6525 hours – 7110 hours)*$12 per hour
= $7020 Unfavourable
Where:-
Standard hours = Standard hours per unit*Actual units
=2.9 standard hours per unit*2250 units
= 6525 hours
Actual rate per hour =Actual cost/total hours worked
=$87440/7110 hours = $12.298171 per hour
Explanation :-
Variable overhead cost variance = Standard cost – Actual cost
= $78300 - $87440 = $9140 Unfavourable
Variable overhead cost variance = Rate variance + Efficiency variance
$9140 Unfavourable=$2120 Unfavourable + $7020 Unfavourable
Standard cost = Standard rate hour*standard hour per unit*Actual units
=$12 per hour *2.9 standard hours per unit*2250 units
= $78300
Actual cost = $87440