Question

Majer Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 6.2 ounces $ 4.00 per ounce $ 24.80 Direct labor 0.5 hours $ 17.00 per hour $ 8.50 Variable overhead 0.5 hours $ 4.00 per hour $ 2.00 The company reported the following results concerning this product in February. Originally budgeted output 4,900 units Actual output 5,000 units Raw materials used in production 30,200 ounces Actual direct labor-hours 2,080 hours Purchases of raw materials 32,600 ounces Actual price of raw materials $ 67.10 per ounce Actual direct labor rate $ 57.60 per hour Actual variable overhead rate $ 5.80 per 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 February is:

Answer 1

The variable overhead efficiency variance for February at Majer Corporation is a favorable $1,680, calculated by multiplying the difference between actual hours and standard hours for actual production by the standard variable overhead rate.

Step-by-step explanation:

The variable overhead efficiency variance is calculated by comparing the standard cost for the actual production with the actual cost incurred.

The formula for the variable overhead efficiency variance is:

Variable Overhead Efficiency Variance = (Actual Hours - Standard Hours for Actual Production) × Standard Variable Overhead Rate

We know the standard variable overhead rate is $4 per hour, the actual direct labor-hours are 2,080, and the standard hours for actual production (5,000 units × 0.5 hours per unit) is 2,500.

• Standard Hours for 5,000 units = 5,000 units × 0.5 hours/unit = 2,500 hours
• Actual Hours = 2,080 hours
• Standard Variable Overhead Rate = $4 per hour

Now we can calculate the variance:

Variable Overhead Efficiency Variance = (2,080 hours - 2,500 hours) × $4 per hour = -420 hours × $4 per hour = -$1,680

Since more hours were budgeted than actually used, this results in a favorable variance.