Question

Bulluck Corporation makes a product with the following standard costs: Standard Quantity or HoursStandard Price or Rate Direct materials 5.20grams$2.70per gram Direct labor 0.70hours$28.00per hour Variable overhead 0.70hours$3.70per hour The company reported the following results concerning this product in July. Actual output 4,700units Raw materials used in production 13,070grams Actual direct labor-hours 3,060hours Purchases of raw materials 13,800grams Actual price of raw materials purchased$2.90per gram Actual direct labor rate$13.10per hour Actual variable overhead rate$3.80per hour The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The variable overhead efficiency variance for July is:

Answer 1

Efficiency variance = $851 favorable

Step-by-step explanation:

Variable overhead efficiency variance: A variance is the difference between a standard cost and the actual cost. Variable overhead efficiency variance aims to determine whether or not their exist savings or extra cost incurred on variable overhead as a result of workers being faster or slower that expected.

Since the variable overhead is charged using labour hours, any amount by which the actual labour hours differ from the standard allowable hours would result in a variance

To calculate this variance, we do as follows:

Hours

4,700 should have taken(4,700 × 0.70 hrs) 3,290

but did take (i.e actual hours) 480 3,060

Efficiency variance in hours 70 unfavorable 230 favourable

Standard variable overhead rate × $3.70

Efficiency variance 851

Efficiency variance = $851 favorable