Lamp Light Limited (LLL) manufactures lampshades. It applies variable overhead o

Question

Lamp Light Limited (LLL) manufactures lampshades. It applies variable overhead on the basis of direct labor hours. Information from LLL's standard cost card follows: During August, LLL had the following actual results: Compute LLL's variable overhead rate variance, variable overhead efficiency variance, and over or underapplied variable overhead. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Explanation / Answer

Variable Overhead Variances:

Actaul variable overhead rate = $9460/15700 hours = $0.603 / hour

Variable overhead Rate variance

= standard overhead rate x Actual labour hours worked– actual overhead rate x Actual labour hours worked

= standard overhead rate x Actual labour hours worked - actual overhead cost incurred

= $0.80 x 15700 - $9460 = $3100 Favourable

Standard labour hours required for actual production = 24700 x 0.6 = 14820 hours

Variable overhead efficiency variance

=(Standard labour hours required for actual production – actual labour hours used) x standard rate per hour

= (14820 hours – 15700 hours) x $0.80/hour

= $704 Unfavourable

Overhead overapplied = $3100

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