Question

Duncanville, Inc., has the following overhead standards:

Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
Duncanville's variable-overhead efficiency variance is:
A. $550 favorable.
B. $550 unfavorable.
C. $4,800 favorable.
D. $4,800 unfavorable.
E. not listed above.

Answer 1

Duncanville's variable-overhead efficiency variance is calculated by comparing standard variable overhead cost to actual variable overhead cost incurred. The variance is found to be C) $4,800 favorable because the actual hours worked are less than the standard hours for the actual production.

Step-by-step explanation:

To calculate Duncanville's variable-overhead efficiency variance, we need to compare the standard cost for the actual hours worked to the actual variable overhead cost incurred. The standard variable overhead rate is $8 per hour. The actual hours worked were 19,800, while the standard hours for the actual production (5,100 units) is 4 hours per unit, resulting in 20,400 standard hours. The variable-overhead efficiency variance is calculated as (Standard Hours for Actual Output - Actual Hours Worked) x Standard Variable Overhead Rate.

So, the calculation looks like this:

• 
  
• Standard Hours for Actual Output = 5,100 units x 4 hours/unit = 20,400 hours
• 
  
• Actual Hours Worked = 19,800 hours
• 
  
• Variable Overhead Rate = $8/hour
• 
  
• Variable-Overhead Efficiency Variance = (20,400 hours - 19,800 hours) x $8/hour

The variance is:

• 
  
• (600 hours) x $8/hour = $4,800

Since the actual hours worked are less than the standard hours for the actual output, we have a favorable variance:

Variable-overhead Efficiency Variance: $4,800 favorable.