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 hours worked with the standard hours allowed, and then multiply the difference by the variable overhead rate.

The standard hours allowed for producing 12,500 units are:
12,500 units x 1.5 standard hours per unit = 18,750 standard hours

The actual hours worked during the period are:
(800 units x 2.5 actual hours per unit) + (1,200 units x 1.5 actual hours per unit) = 3,800 actual hours

Therefore, the variable overhead efficiency variance is:
(18,750 standard hours - 3,800 actual hours) x $0.10 per hour = $1,775 U

The correct answer is C, $1,760 U, which is the closest to the calculated variance.

A Manufacturing Company Uses a Standard Costing System in Which