Rule: The formula for the variable overhead efficiency variance is computed as budgeted variable overhead based on standard hours minus budgeted variable overhead based on actual hours. The sole difference between these two calculated amounts is the use of actual compared to standard hours for variable overhead. Choice "B" is correct. Volume variances are computed as follows:Budgeted variable overhead based on standard hours:
Note that direct labor hours based on standard hours means the direct labor hours allowed for the actual level of production, not the actual direct labor hours used. |
Budgeted variable OHallowed x standard variable overhead rate |
Budgeted variable OH.1 hour allowed per frame x $2.00 per hour$3,800 |
Budgeted overhead based on actual hours:
Budgeted variable OHactual direct labor hours x standard variable overhead rate |
Budgeted variable OH$2.00 per hour$4,200 |
Variable overhead efficiency variance:
The difference between the two amounts is an unfavorable variance of $400 ($4,200 - $3,800). The variance is unfavorable because costs using actual direct labor hours exceeded the budgeted cost for standard labor hours. |
Choices "a", "d", and "c" are incorrect, based on the above computation.
