Neptune Inc. uses a standard cost system and has the following information for t

Question

Neptune Inc. uses a standard cost system and has the following information for the most recent month, April:

The variable factory overhead efficiency variance for Neptune, Inc. in April was:

$940 unfavorable.

$1,040 favorable.

$1,980 favorable.

$2,160 favorable.

$3,200 favorable.

Actual direct labor hours (DLHs) worked 17,000 Standard direct labor hours allowed for good output produced this period 18,000 Actual total factory overhead costs incurred $45,400 Budgeted fixed factory overhead costs $10,800 Denominator activity level, in direct labor hours (DLHs) 15,000 Total factory overhead application rate per standard direct labor hour $2.70

Explanation / Answer

C. $1,980 favorable

Variable OH efficiency variance = Std. VOH rate/DLH x (actual -standard allowed) DLHs

Budgeted FOH rate = Budgeted fixed overhead/denominator activity level = $10,800/15,000 = $.72/DLH

VOH rate = Total OH rate -FOH rate = $2.70 (given) -$.72 = $1.98/DLH

Actual DLHs worked = 17,000 (given)

Standard allowed hours for this period's production = 18,000 (given)

Therefore, variable overhead efficiency variance = $1.98/DLH x (17,000 - 18,000) DLHs = $1,980 favorable

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