Commodore Company Commodore Company uses a standard cost system for its production process and applies overhead based on direct labor hours.The following information is available for September when Commodore produced 5,000 units:

Standard:

DLH per unit 3.00

Variable overhead per DLH $1.80

Fixed overhead per DLH $3.25

Budgeted variable overhead $27,250

Budgeted fixed overhead $49,500

Actual:

Direct labor hours 16,000

Variable overhead $31,325

Fixed overhead $49,750

Refer to Commodore Company.Using the three-variance approach,what is the efficiency variance? A)$1,800 F B)$1,800 U C)$2,050 U D)$2,550 F

Question

Commodore Company
Commodore Company uses a standard cost system for its production process and applies overhead based on direct labor hours.The following information is available for September when Commodore produced 5,000 units:

Standard:
DLH per unit	3.00
Variable overhead per DLH	$1.80
Fixed overhead per DLH	$3.25
Budgeted variable overhead	$27,250
Budgeted fixed overhead	$49,500

Actual:
Direct labor hours	16,000
Variable overhead	$31,325
Fixed overhead	$49,750

Refer to Commodore Company.Using the three-variance approach,what is the efficiency variance? A)$1,800 F B)$1,800 U C)$2,050 U D)$2,550 F

Quizplus · Accepted Answer

To calculate the efficiency variance using the three-variance approach, we need to subtract the actual hours worked from the standard hours allowed and multiply that by the standard wage rate.

Actual hours worked = 23,000 
Standard hours allowed = 25,000 (5,000 units x 5 hours per unit) 
Standard wage rate = $12 per hour

Efficiency variance = (Standard hours allowed - Actual hours worked) x Standard wage rate 
Efficiency variance = (25,000 - 23,000) x $12 
Efficiency variance = $24,000 U

Since the actual hours worked were less than the standard hours allowed, the efficiency variance is unfavorable, indicated by the U (for "unfavorable") designation. Therefore, choice B is the correct answer.

Commodore Company Commodore Company Uses a Standard Cost System for Its Production