Jemco Corporation makes automotive engines. For the most recent month, budgeted production was 6,000 engines. The standard power cost is $8.80 per machine-hour. The company's standards indicate that each engine requires 6.1 machine-hours. Actual production was 6,400 engines. Actual machine-hours were 38,730 machine-hours. Actual power cost totaled $350,628. Required:Determine the rate and efficiency variances for the variable overhead power cost and indicate whether those variances are unfavorable or favorable. Show your work.
What will be an ideal response?
Standard machine-hours allowed for the actual output = 6.1 × 6,400 = 39,040.
Variable overhead rate variance = (AH × AR) - (AH × SR).
= $350,628 - (38,730 hours × $8.80 per hour).
= $350,628 - $340,824.
= $9,804 U.
Variable overhead efficiency variance = SR × (AH - SH).
= $8.80 per hour × (38,730 hours - 39,040 hours*).
= $340,824 - $343,552.
= $2,728 F.
*6,400 units × 6.1 hours = 39,040 hours
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