Ruston Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the most recent month appear below: The original budget was based on 4,500 machine-hours. The company actually worked 4,590 machine-hours during the month and the standard hours allowed for the actual output were 4,700 machine-hours. What was the overall variable overhead efficiency variance for the month?
A)$50 unfavorable
B)$869 favorable
C)$969 unfavorable
D)$100 unfavorable

Question

Ruston Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the most recent month appear below:  The original budget was based on 4,500 machine-hours. The company actually worked 4,590 machine-hours during the month and the standard hours allowed for the actual output were 4,700 machine-hours. What was the overall variable overhead efficiency variance for the month?
A)$50 unfavorable 
B)$869 favorable 
C)$969 unfavorable 
D)$100 unfavorable

Quizplus · Accepted Answer

Variable overhead efficiency variance measures the difference between actual machine hours used and standard machine hours allowed, multiplied by the variable overhead rate per hour.

Variable overhead rate per hour = Budgeted variable overhead costs ÷ Budgeted machine hours

Variable overhead rate per hour = $12,060 ÷ 4,500 = $2.68 per machine-hour

Standard variable overhead cost for actual output = Standard machine hours allowed x Variable overhead rate per hour

Standard variable overhead cost for actual output = 4,700 x $2.68 = $12,636

Variable overhead efficiency variance = (Standard hours allowed - Actual hours used) x Variable overhead rate per hour

Variable overhead efficiency variance = (4,700 - 4,590) x $2.68

Variable overhead efficiency variance = 110 x $2.68

Variable overhead efficiency variance = $293.80 (Favorable)

Therefore, the answer is (B) $869 (Favorable).

Ruston Corporation Applies Manufacturing Overhead to Products on the Basis