Vitko Corporation makes automotive engines. For the most recent month, budgeted

Question

Vitko 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 item power cost and indicate whether those variances are unfavorable or favorable.

Explanation / Answer

variable overhead rate variance = Actual Hours x Standard Rate - Actual hours x Actual Rate

= 38730 x ( 8.8) - $350,628 = 340824 - $350,628 = 9804 Unfavorable

variable efficiency variance = Standard Hours x Standard Rate - Actual Hours x Standard Rate

= ( 6,000 x 6.1 - 38,730) x 8.8 = 18744 Unfavorable

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