Gina Production Company uses a standard costing system.The following information pertains to the current year. $\begin{array}{llr}
\text { Actual factory overhead costs $ (\$ 16,500 $ is fixed) } &\$10,125\
\text { Actual direct labour costs (11,250 hours) } &\$131,625\
\text { Standard direct labour for 5,500 units: } &\
\text {Standard hours allowed } &11,000 \text {hours}\
\text { Labour rate } &\$12.00\

\end{array}$
The factory overhead rate is based on an activity level of 10,000 units.Standard cost data for 5,000 units is as follows:
$\begin{array}{lr}
\text { Variable factory overhead } & \$ 22,500 \
\text { Fixed factory overhead } & \underline{13,500} \
\text { Total factory overhead } & \underline{\$ 36,000} \
\end{array}$ What is the variable overhead efficiency variance for Gina Production Company?
A)$562.50 (F)
B)$562.50 (U)
C)$1,687.50 (F)
D)$3,000.00 (U)

Question

Gina Production Company uses a standard costing system.The following information pertains to the current year. $\begin{array}{llr}
  \text { Actual factory overhead costs \( (\$ 16,500 $ is fixed) } &\$10,125\
 \text { Actual direct labour costs (11,250 hours) } &\$131,625\
 \text { Standard direct labour for 5,500 units: } &\
 \text {Standard hours allowed  } &11,000 \text {hours}\
 \text { Labour rate } &\$12.00\

\end{array}\)
 The factory overhead rate is based on an activity level of 10,000 units.Standard cost data for 5,000 units is as follows:
$\begin{array}{lr}
\text { Variable factory overhead } & \$ 22,500 \
\text { Fixed factory overhead } & \underline{13,500} \
\text { Total factory overhead } &  \underline{\$ 36,000} \
\end{array}$ What is the variable overhead efficiency variance for Gina Production Company?
A)$562.50 (F)
B)$562.50 (U)
C)$1,687.50 (F)
D)$3,000.00 (U)

Quizplus · Accepted Answer

Variable overhead efficiency variance measures the difference between the actual amount of the variable overhead cost incurred and the standard variable overhead cost expected for the actual production volume achieved. 
Variable overhead efficiency variance= (AH x SR) - (SH x SR) 
where: 
AH = Actual number of hours worked at the actual production volume 
SR = Standard variable overhead rate per unit of activity 
SH = Standard number of hours allowed for the actual production volume

From the information given, 
AH = 5,500 hours (11,000 machine hours ÷ 2) 
SH = 5,000 hours (standard hours for 5,000 units) 
SR = $1.50 per machine hour (total budgeted overhead cost ÷ budgeted machine hours)

Variable overhead efficiency variance = (5,500 x $1.50) - (5,000 x $1.50) = $562.50 (U)

Gina Production Company Uses a Standard Costing System The Factory Overhead Rate Is Based on an Activity Level