Question

Opal Production Company uses a standard costing system. The following information pertains to the current year: Actual factory overhead costs ($15,000 is fixed) $50,000 Actual direct labor costs (10,000 hours) $130,000 Standard direct labor for 6,000 units: ​ Standard hours allowed 9,500 hours Labor rate $10.00 ​ The factory overhead rate is based on an activity level of 12,000 hours. Standard cost data on an activity level of 12,000 hours is as follows: Variable factory overhead $18,000 Fixed factory overhead 12,000 Total factory overhead $30,000 ​ What is the variable overhead efficiency variance for Opal Production Company?

Answer 1

$750 Unfavorable

Step-by-step explanation:

The calculation of variable overhead efficiency variance is shown below:-

Variable overhead efficiency variance = (Actual direct labor hours - Standard hours allowed) × (Variable factory overhead ÷ Factory overhead rate)

= (10,000 hours - 9,500 hours) × ($18000 ÷ 12000)

= 500 hours × $1.5

= $750 Unfavorable

Therefore for computing the variable overhead efficiency variance we simply applied the above formula.