Question

XYZ Manufacturing uses a standard cost system with overhead applied based on direct-labor hours. The manufacturing budget for the production of 5,000 units for the month of June included 10,000 hours of direct labor at $20 per hour, or $200,000. During June, 4,500 units were produced, using 9,600 direct-labor hours, incurring $43,400 of variable overhead, and showing a variable overhead efficiency variance of $3,600 unfavorable. The standard variable overhead rate per direct-labor hour was: 1. $5.85 2. $6.00 3. $6.20 4. $0

Answer 1

2. $6.00

Step-by-step explanation:

The formula to compute the variable overhead efficiency variance is shown below:

Variable overhead efficiency variance = (standard direct labor hours - Actual direct labor hours ) × variable overhead rate per hour

-$3,600 = (9,000 hours - 9,600 hours) × variable overhead rate per hour

-$3,600 = - 600 hours × variable overhead rate per hour

So, the variable overhead rate per hour would be

= $3,600 ÷ 600 hours

= $6 per hour

The standard direct labor hours would be

= 10,000 hours ÷ 5,000 units × 4,500 units

= 2 hours × 4,500 units

= 9,000 hours