Buckingham Company uses a standard cost system for its production process and ap

Question

Buckingham Company uses a standard cost system for its production process and applies overhead based on direct labor hours. The following information is available for May when Buckingham produced 4,500 units:

Standard:

DLH (Direct Labor Hour) per unit          2.50

Variable overhead per DLH                  $1.75

Fixed overhead per DLH $3.10

Budgeted variable overhead $21,875

Budgeted fixed overhead   $38,750

Actual:

Direct labor hours                              10,000

Variable overhead                             $26,250

Fixed overhead                                 $38,000

Refer to Buckingham Company’s data. What is the variable overhead efficiency variance?

Explanation / Answer

SRSH                                                      SRAH                                                      ARAH

1.75 x 11,250                                       $ 1.75 x 10,000                                                      $ 26,250

= 19,687.5                                               = 17,500                                                                                      

SH =Standard hours required for actual production = 2.5 x 4500 = 11,250

SR = Standard and rate = 1.75

AH = Actual hours = 10,000 hours

Variable overhead efficiency variance = SRSH – SRAH    

                                                                           = 19,687.5 – 17,500

                                                                            = 2,187.5        F

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