Question

Priority Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 9,000 Actual variable overhead incurred: $54,400 Actual machine hours worked: 16,000 Standard variable overhead cost per machine hour: $3.50 If Priority estimates two hours to manufacture a completed unit, the company's variable-overhead efficiency variance is: Multiple Choice None of the answers is correct. $1,600 favorable. $7,000 favorable. $7,000 unfavorable. $1,600 unfavorable.

Answer 1

The correct option is $7,000 favorable.

Step-by-step explanation:

This can be calculated using the following formula:

Standard hours for actual units produced = Actual units produced * Estimated number of hours to manufacture a completed unit = 9,000 * 2 = 18,000

Variable-overhead efficiency variance = (Actual machine hours worked - Standard machine hours for actual units produced) * Standard variable overhead cost per machine hour = (16,000 - 18,000) * 3.50 = –$7,000

Since the calculated Variable-overhead efficiency variance is negative, that implies that it is favorable,

Therefore, the correct option is $7,000 favorable.