Abbott has a standard variable overhead rate of $4.50 per machine hour, and each unit produced has a standard time allowed of three hours. The company's static budget was based on 46,000 units. Actual results for the year follow.
Actual units produced: 42,000
Actual machine hours worked: 120,000
Actual variable overhead incurred: $520,000
Abbott's variable-overhead efficiency variance is:
A) $20,000 favorable.
B) $20,000 unfavorable.
C) $27,000 favorable.
D) $27,000 unfavorable.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

To calculate the variable-overhead efficiency variance, we need to compare the actual machine hours worked with the hours that should have been worked based on the actual units produced and the standard time allowed per unit.

Standard hours allowed = Standard time allowed per unit x Actual units produced
Standard hours allowed = 3 x 42,000 = 126,000

Variable-overhead efficiency variance = (Standard hours allowed - Actual machine hours worked) x Standard variable overhead rate
Variable-overhead efficiency variance = (126,000 - 120,000) x $4.50
Variable-overhead efficiency variance = $27,000 favorable

Therefore, the answer is C.

Abbott Has a Standard Variable Overhead Rate of $4