Question

Biscuit Company has developed the following standards for one of its products. Direct labor hours is the driver used to assign overhead costs to products. Direct materials: 10 pounds × $3 per pound Direct labor: 2.5 hours × $8 per hour Variable manufacturing overhead: 2.5 hours × $2 per hour The following activity occurred during the month of June: Materials purchased: 125,000 pounds at $2.60 per pound Materials used: 110,000 pounds Units produced: 10,000 units Direct labor: 23,500 hours at $7.50 per hour Actual variable manufacturing overhead: $51,000 ​ The company records materials price variances at the time of purchase. The variable manufacturing overhead efficiency variance is a. $1,000 favorable. b. $2,000 favorable. c. $3,000 favorable. d. $1,000 unfavorable.

Answer 1

The variable manufacturing overhead efficiency variance is $2,000 favorable. The Option B is correct.

The variable manufacturing overhead efficiency variance is a measure of the difference between the actual hours worked and the standard hours allowed for the production of goods.

Variable overhead efficiency variance = Standard overhead rate * (Actual hours - standard hours)

= $2 * (24,000 - (2.5*10,000)

= $2 * 1,000

= $2,000 F

Therefore, the variable manufacturing overhead efficiency variance is $2,000 favorable.