a) Druid Company makes a single product and uses a standard costing system that

Question

a) Druid Company makes a single product and uses a standard costing system that applies overhead on the basis of direct labor hours. They recently used 2,000 labor hours to produce 300units. Their static budget indicated expectations of 500 units, 3,000 DLH and $60,000 in variable overhead. Actual VOH totaled $30,000. What was the variable overhead efficiency variance?

Please indicate favorable variances with an "f" and unfavorable variances with a "u"

(Round to the nearest dollar at the end of your calculations)

b} Alpha company makes a single product and uses a standard costing system that applies overhead on the basis of direct labor hours. For the most recent period, the VOH spending variance was $80,000 F, and the VOH Efficiency Variance was $130,000 U. The company budgeted making 4,800 units at 3.5 hours each with $924,000 of VOH. The company actually produced 3,000 units. What was the actual VOH?

(Please round to nearest dollar at the end of your calculations)

Explanation / Answer

Solution for Question (a)

Variable Overhead Efficiency Variance is the difference between actual hours and standard hours needed for actual production at standard rate per hour.

Variable Overhead Efficiency Variance = Standard Rate (Std Hours Needed for actual production – Actual Hours)

Here,

Standard Rate per hour = Total Variable Overhead as per Static Budget / Total DLHs as per static budget

= $60,000 / 3,000

= $20 per hour

Actual Direct Labor Hours = 2,000 Labor Hours

Standard Hours needed per unit = Total Expected Direct labor hours 3,000 / Total Expected Production Units 500

= 6 hours per unit

Std Hours Needed for actual production = Actual Produced Units x Standard Hours needed per unit = 300 Units x 6 hours per unit = 1,800 Hours

Variable Overhead Efficiency Variance = Standard Rate $20 (Std Hours Needed for actual production 1,800 – Actual Hours 2,000)

= $20 (1800 – 2000)

= $4,000 Unfavorable

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