Sade Inc. has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.?InputsStandard Quantity or Hours per Unit of OutputStandard Price or Rate?Variable manufacturing overhead0.20 hours$7.00 per hourThe company has reported the following actual results for the product for December:?Actual output5,300 units?Actual direct labor-hours1,160 hours?Actual variable overhead rate$6.80 per hourRequired:a. Compute the variable overhead rate variance for December.b. Compute the variable overhead efficiency variance for December.
What will be an ideal response?
a. Variable overhead rate variance = (AH × AR) ? (AH × SR)
= AH × (AR ? SR)
= 1,160 hours × ($6.80 per hour ? $7.00 per hour)
= 1,160 hours × (-$0.20 per hour)
= $232 F
b. SH = 5,300 units × 0.20 hours per unit = 1,060 hours
Variable overhead efficiency variance = (AH × SR) ? (SH × SR)
= (AH ? SH) × SR
= (1,160 hours ? 1,060 hours) × $7.00 per hour
= (100 hours) × $7.00 per hour
= $700 U
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