Question

Everly Company has determined a standard variable overhead rate of $2.75 per direct labor hour and expects to incur 1.0 labor hour per unit produced. Last month, Beverly incurred 1,100 actual direct labor hours in the production of 1,200 units. The company has also determined that its actual variable overhead rate is $2.70 per direct labor hour.

Calculate the variable overhead rate and efficiency variances also indicate if the variable are favorable or unfavorable the total amount of over- or underapplied variable overhead. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Variable Overhead Rate Variance
Variable Overhead Efficiency Variance
Over- or Underapplied Variable Overhead

Answer 1

Variable Overhead Rate Variance - $55 favorable

Variable Overhead Efficiency Variance - $275 favorable

Over applied efficiency variance - $330 favorable

Step-by-step explanation:

The computations are shown below:

Variable Overhead Rate Variance = Actual Hours × (Actual Rate - Standard variable overhead Rate)

= 1,100 hours × ($2.70 - 2.75)

= $55 favorable

Variable Overhead Efficiency Variance = Standard variable overhead Rate × (Actual Hours - Standard Hours)

= $2.75 × (1,100 hours - 1 × 1,200)

= $275 favorable

So, the over-applied variable overhead would be

= $55 favorable + $275 favorable

= $330 favorable