A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: The variable overhead efficiency variance for the period is closest to:
A)$300 F
B)$1,465 U
C)$1,760 U
D)$1,775 U

Question

A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:  The following data pertain to operations for the most recent period:  The variable overhead efficiency variance for the period is closest to:
A)$300 F 
B)$1,465 U 
C)$1,760 U 
D)$1,775 U

Quizplus · Accepted Answer

To calculate the variable overhead efficiency variance, we need to compare the actual machine-hours used to the budgeted machine-hours allowed based on the actual output.
Actual machine-hours = 22,000
Budgeted machine-hours = 11,000 units × 1.5 MHs per unit = 16,500
Standard variable overhead rate = $5 per MH
Variable overhead applied = 16,500 MHs × $5 per MH = $82,500
Actual variable overhead = $84,260
Variable overhead efficiency variance = (Actual MHs - Budgeted MHs) × Standard rate
= (22,000 - 16,500) × $5 = $27,500 U
Therefore, the closest option is C ($1,760 U).

A Manufacturing Company Uses a Standard Costing System in Which