Sampson Apparel Inc. Sampson Apparel Inc. incurred actual variable overhead expenses of $20,000 in the current year for the production of 5,000 units. Variable overhead was applied at a rate of $1.50 per direct labor hour and 2 direct labor hours were budgeted for each unit. The company used 9,000 direct labor hours for production.
Refer to the Sampson Apparel Inc. information above. What was Sampson's variable overhead efficiency variance?
A) $6,500 U
B) $6,500 F
C) $1,500 U
D) $1,500 F

Question

Quizplus · Accepted Answer

The variable overhead efficiency variance is calculated as (Actual hours - Standard hours) x Standard rate. Standard hours for 5,000 units at 2 hours each is 10,000 hours. The difference between actual hours (9,000) and standard hours (10,000) is -1,000 hours. Multiplying this by the standard rate of $1.50 gives a variance of $1,500 favorable, since using fewer hours than planned is a favorable outcome.