ExpertHard1 markMultiple Choice
CPA · Question 07 · Area I: Business Analysis
A company applies variable overhead based on direct labor hours. <br/>Standard Rate: $10 per DLH<br/>Standard Hours allowed for actual production: 2,000 DLH<br/>Actual Variable Overhead: $22,500<br/>Actual Direct Labor Hours worked: 2,100 DLH<br/><br/>Calculate the Variable Overhead Efficiency Variance.
A company applies variable overhead based on direct labor hours. <br/>Standard Rate: $10 per DLH<br/>Standard Hours allowed for actual production: 2,000 DLH<br/>Actual Variable Overhead: $22,500<br/>Actual Direct Labor Hours worked: 2,100 DLH<br/><br/>Calculate the Variable Overhead Efficiency Variance.
Answer options:
A.
$1,000 Favorable
B.
$1,000 Unfavorable
C.
$1,500 Unfavorable
D.
$2,500 Unfavorable
How to approach this question
Efficiency Variance measures the impact of using more/less of the driver (hours) than standard. Formula: (AH - SH) x SR.
Full Answer
B.$1,000 Unfavorable✓ Correct
B
VOH Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate = (2,100 - 2,000) * $10 = $1,000. Since actual hours > standard hours, it is Unfavorable.
Common mistakes
Calculating the spending variance instead; using the actual rate instead of the standard rate.
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