ExpertMedium1 markMultiple Choice
CPA · Question 02 · Area I: Business Analysis
A manufacturing company uses a standard cost system. For the month of June, the following data is available regarding variable overhead:<br/><br/>- Actual Variable Overhead: $185,000<br/>- Actual Machine Hours Worked: 22,000 hours<br/>- Standard Machine Hours Allowed for Actual Production: 20,000 hours<br/>- Standard Variable Overhead Rate: $8 per machine hour<br/><br/>What is the Variable Overhead Efficiency Variance for June?
A manufacturing company uses a standard cost system. For the month of June, the following data is available regarding variable overhead:<br/><br/>- Actual Variable Overhead: $185,000<br/>- Actual Machine Hours Worked: 22,000 hours<br/>- Standard Machine Hours Allowed for Actual Production: 20,000 hours<br/>- Standard Variable Overhead Rate: $8 per machine hour<br/><br/>What is the Variable Overhead Efficiency Variance for June?
Answer options:
A.
$9,000 Unfavorable
B.
$16,000 Favorable
C.
$16,000 Unfavorable
D.
$25,000 Unfavorable
How to approach this question
Use the formula: VOH Efficiency Variance = (AH - SH) * SR. Identify Actual Hours (AH), Standard Hours Allowed (SH), and Standard Rate (SR). Determine if Favorable or Unfavorable based on whether AH > SH (Unfavorable) or AH < SH (Favorable).
Full Answer
C.$16,000 Unfavorable✓ Correct
VOH Efficiency Variance = (Actual Hours - Standard Hours Allowed) x Standard Rate<br/>= (22,000 - 20,000) x $8<br/>= 2,000 x $8<br/>= $16,000<br/>Since the company used more hours (22,000) than allowed (20,000) to produce the output, the variance is Unfavorable.
Common mistakes
Confusing Spending Variance with Efficiency Variance; using Actual Rate instead of Standard Rate; incorrect F/U designation.
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