Xcel Technologies, Inc. applies variable manufacturing overhead to products based on machine hours. The standard variable overhead rate is $5 per machine hour. The standard time allowed for producing one unit is 2 machine hours. During the month of August, the company produced 500 units. It incurred actual variable costs of $5,655 and used 870 machine hours. Calculate the variable overhead efficiency variance for the month of August.
A) $650 favorable
B) $650 unfavorable
C) $845 favorable
D) $845 unfavorable
|Budgetted hour per unit||2|
|Budgetted rate per hour||5|
|Actual unit produced||500|
Variable overhead efficiency = (actual labor hours less budgeted labor hours) x hourly rate for standard variable overhead
= (870-500*2)*5 = 650 Favorable
In this case, the company has taken less hours than budgetted for actual units produced leading to Favorable efficiency
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