ExpertMedium1 markMultiple Choice
CPA · Question 06 · Area I: Business Analysis
A company uses a standard costing system. For the month of June, the following data is available regarding variable overhead:<br/>- Budgeted Variable Overhead: $100,000 based on 20,000 direct labor hours.<br/>- Actual Variable Overhead: $110,000.<br/>- Actual Direct Labor Hours Worked: 21,000.<br/>- Standard Direct Labor Hours Allowed for Actual Production: 22,000.<br/><br/>Calculate the Variable Overhead Efficiency Variance.
A company uses a standard costing system. For the month of June, the following data is available regarding variable overhead:<br/>- Budgeted Variable Overhead: $100,000 based on 20,000 direct labor hours.<br/>- Actual Variable Overhead: $110,000.<br/>- Actual Direct Labor Hours Worked: 21,000.<br/>- Standard Direct Labor Hours Allowed for Actual Production: 22,000.<br/><br/>Calculate the Variable Overhead Efficiency Variance.
Answer options:
A.
$5,000 Unfavorable
B.
$5,000 Favorable
C.
$10,000 Unfavorable
D.
$5,000 Unfavorable
How to approach this question
Use the formula: (Actual Hours - Standard Hours) x Standard Rate. If Actual < Standard, it is Favorable.
Full Answer
B.$5,000 Favorable✓ Correct
1. Calculate Standard Rate: $100,000 / 20,000 hours = $5 per DLH.<br/>2. Formula: (Actual Hours - Standard Hours Allowed) x Standard Rate.<br/>3. Calculation: (21,000 - 22,000) x $5 = -1,000 x $5 = $5,000 Favorable.<br/><br/>It is favorable because the company used fewer hours (21,000) than the standard allowed (22,000) for the actual output.
Common mistakes
Confusing Spending and Efficiency variances; getting the direction (F/U) wrong.
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