Glendale Brands Company uses standard costs for its manufacturing division Standards specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data:

Question

Production volume 6,000 units
Budgeted variable overhead costs $14,000
Budgeted direct labor hours (DLHr) 600 hours

At the end of the year, actual data were as follows:

Production volume 4,000 units
Actual variable overhead costs $15,200
Actual direct labor hours (DLHr) 480 hours

What is the variable overhead efficiency variance? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
A) $1,866 F
B) $1,866 U
C) $2,534 F
D) $2,534 U

Answer 1

B .B) Variable overhead efficiency variance = (Actual quantity - Standard quantity) x Standard cost
Variable overhead efficiency variance = (480 DLHr - 400 DLHr) x $23.33 per direct labor hour = $1,866 Unfavorable

Note:
Standard quantity or standard direct labor hours for 4,000 units = 4,000 units x 0.1 direct labor hour per unit = 400 direct labor hours
Standard cost per direct labor hour = Budgeted variable overhead costs / Budgeted direct labor hours = $14,000 / 600 direct labor hours = $23.33 per direct labor hour