Answer (A) is correct . The variable overhead efficiency variance equals the difference between actual and standard direct labor hours times the standard cost per hour. Fixed overhead was budgeted at $600,000 ($3 × 200,000 expected units). Thus, total variable overhead was estimated to be $300,000 ($900,000 total OH – $600,000), and the variable overhead application rate was $.75 per hour [$300,000 ÷ (2 hours × 200,000 units)]. Standard hours for actual production are 396,000 (198,000 units × 2). Actual hours worked were 440,000. Hence, the variable overhead efficiency variance is $33,000 [(440,000 actual hours – 396,000 standard hours for actual output) × $.75]. The variance is unfavorable because actual hours exceed budgeted hours.
Answer (B) is incorrect because The variable overhead efficiency variance is unfavorable because the actual hours exceed budgeted hours.
Answer (C) is incorrect because The variable overhead efficiency variance of $66,000 is calculated by incorrectly using a variable overhead application rate of $1.50 per hour, which does not take into account that each unit of production requires 2 standard hours of labor for completion.
Answer (D) is incorrect because The variable overhead efficiency variance is unfavorable because the actual hours exceed budgeted hours.
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Franklin’s variable overhead efficiency variance for the year is