Milar Corporation makes a product with the following standard costs: In January

Question

Milar Corporation makes a product with the following standard costs:

In January the company produced 2,000 units using 16,060 pounds of the direct material and 210 direct labor-hours. During the month, the company purchased 16,900 pounds of the direct material at a cost of $65,910. The actual direct labor cost was $4,473 and the actual variable overhead cost was $756.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The variable overhead efficiency variance for January is:

$36 U

$40 F

$36 F

$40 U

Standard Quantity or Hours Standard Price or Rate Direct materials 7.7 pounds $ 4.00 per pound Direct labor 0.1 hours $ 20.00 per hour Variable overhead 0.1 hours $ 4.00 per hour

Explanation / Answer

Variable overhead efficiency = (Standard Hours - Actual hours) x Standard overhead rate
= {(2,000 units x 0.1 hour per unit) - 210} x $4.00 per hour
= (200 - 210) x $4.00
= $40 Unfavorable

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