Draco, Inc. has the following overhead standards:
Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
Draco's variable-overhead efficiency variance is:
A) $550 favorable.
B) $550 unfavorable.
C) $4,800 favorable.
D) $4,800 unfavorable.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

To calculate variable-overhead efficiency variance, we need to compare the actual hours used (based on actual production) to the standard hours allowed (based on planned production).

Actual hours used = (actual machine hours worked) x (actual units produced) = 19,800 x 5,100 = 100,980 hours

Standard hours allowed = (standard variable overhead per unit) x (actual units produced) = (4 hours x $8 per hour) x 5,100 = $163,200

Variable-overhead efficiency variance = (standard hours allowed - actual hours used) x (standard variable overhead rate)

= ($163,200 - 100,980) x $8 per hour

= $4,817.60, which is rounded to $4,800 favorable.

Draco, Inc. Has the Following Overhead Standards