ExpertMedium2 marksMultiple Choice
ACCA · Question 26 · Standard Costing
Section A
PowerGen Utilities absorbs variable overheads based on labor hours. The standard variable overhead rate is $8 per labor hour. Standard time per unit is 2 hours. Actual production was 5,000 units, taking 10,500 labor hours. What is the variable overhead efficiency variance?
Section A
PowerGen Utilities absorbs variable overheads based on labor hours. The standard variable overhead rate is $8 per labor hour. Standard time per unit is 2 hours. Actual production was 5,000 units, taking 10,500 labor hours. What is the variable overhead efficiency variance?
Answer options:
A.
$4,000 Favorable
B.
$4,000 Adverse
C.
$8,000 Adverse
D.
$4,200 Adverse
How to approach this question
Compare the standard hours allowed for actual production against the actual hours worked. Multiply the difference by the standard variable overhead rate.
Full Answer
B.$4,000 Adverse✓ Correct
Standard hours for 5,000 units = 10,000 hours. Actual hours = 10,500. They took 500 hours longer than standard (inefficient). Variable OH Efficiency Variance = (10,000 - 10,500) * $8 = $4,000 Adverse.
Common mistakes
Using actual production units instead of hours, or confusing efficiency with expenditure variance.
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