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 unfavorable. $7,000 favorable. $7,000 unfavorable. $1,600 favorable.

Answer 1

Variable overhead efficiency variance= $7,000 favorable

Step-by-step explanation:

To calculate the variable overhead efficiency variance, we need to use the following formula:

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

Standard quantity= 9,000*2= 18,000 hours

Actual quantity= 16,000 hours

Standard rate= $3.5 per hour

Variable overhead efficiency variance= (18,000 - 16,000)*3.5

Variable overhead efficiency variance= $7,000 favorable