Oddo Corporation makes a product with the following standard costs:
| Standard Quantity or Hours | Standard Price or Rate | Standard Cost Per Unit | |
| Direct materials | 3.0 ounces | $7.00 per ounce | $21.00 |
| Direct labor | 0.7 hours | $20.00 per hour | $14.00 |
| Variable overhead | 0.7 hours | $5.00 per hour | $3.50 |
The company reported the following results concerning this product in December.
| Originally budgeted output | 4,400 | units |
| Actual output | 4,200 | units |
| Raw materials used in production | 12,820 | ounces |
| Actual direct labor-hours | 3,160 | hours |
| Purchases of raw materials | 14,500 | ounces |
| Actual price of raw materials | $6.80 | per ounce |
| Actual direct labor rate | $18.30 | per hour |
| Actual variable overhead rate | $5.10 | per hour |
The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for December is:
$1,100 U
$1,122 F
$1,122 U
$1,100 F
Answer : 1100 U
Working notes for the above answer is as under
The variable overhead efficiency variance is the difference between the actual and budgeted hours worked, which are then applied to the standard variable overhead rate per hour. The formula is:
Standard overhead rate x (Actual hours – standard hours)
= Variable overhead efficiency variance
Standered Rate
5
Actual Hour
3160
Standered Hour
(4200*0.7)
2940
Now we will calculate the variable overhead efficiency variance for December is:
Standard overhead rate x (Actual hours – standard hours)
= Variable overhead efficiency variance
= 5 * (2940-3160)
=5*-220
=-1100
= 1100 U
